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The balance sheet for Sandhill Co. reports the following information on July 1, 2017. SANDHILL...

Question:

The balance sheet for Sandhill Co. reports the following information on July 1, 2017.

SANDHILL CO.
Balance Sheet (partial)
Long-term liabilities
Bonds payable $3,000,000
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:

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:

Date Account Debit Credit 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)

Learn more about this topic:

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Long-Term Debt: Definition, Cost & Formula

from Financial Accounting: Help and Review

Chapter 8 / Lesson 7
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