The balance sheet for Sandhill Co. reports the following information on July 1, 2017.
|Balance Sheet (partial)|
|Less: Discount on bonds payable||67,500||$2,932,500|
Sandhill decides to redeem these bonds at 104 after paying annual interest.
Prepare the journal entry to record the redemption on July 1, 2017.
Bonds are long-term debt instruments issued by companies in order to raise capital. Bonds are characterized by their principal values and their interest rates. The principal must be repaid by the bond's due date; and the interest rate determines the interest to be paid to investors. The bond's interest rate in comparison to the market rate also determines the bond's issuance price.
Answer and Explanation:
|July 1, 2017||Bonds Payable||$3,000,000||Remove bonds payable at face value|
|Loss on Redemption of Bonds||$187,500||Record loss on bond redemption ($3,120,000 + $67,500 - $3,000,000)|
|Discount on Bonds Payable||$67,500||Remove discount on bonds payable|
|Cash||$3,120,000||Record outflow of cash required to redeem bonds ($3,000,000 x 1.04)|
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from Financial Accounting: Help and ReviewChapter 8 / Lesson 7