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15 August, 18:45

The balance sheet of Indian River Electronics Corporation as of December 31, 2017, included 13% bonds having a face amount of $90.3 million. The bonds had been issued in 2010 and had a remaining discount of $3.3 million at December 31, 2017. On January 1, 2018, Indian River Electronics called the bonds before their scheduled maturity at the call price of 102. Required: Prepare the journal entry by Indian River Electronics to record the redemption of the bonds at January 1, 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

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  1. 15 August, 21:26
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    Dr Bonds payable $90,300,000

    Dr loss on early redemption of bonds $5,106,000

    Cr Discounts on bonds payable $3,300,000

    Cr Cash $92,106,000

    Explanation:

    The amount of cash paid to bondholders by calling the bonds is the 102% of the face value of $90.3 million i. e $90.3*102%=$92,106,000

    The proceeds would debited to cash while the face value of the bond of $90.3 million would be debited to bonds payable account.

    In addition the remaining discount of $3.3 million would credited to discounts on bonds payable account.

    The loss or gain on the bond call can then be determined as appropriate.
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