On June 30, 2011, Mendenhal plc issued 8% bonds with a par value of £600,000 due in 20 years. They were issued at 82.8414 to yield 10% and were callable at 104 at any date after June 30, 2019. Because of lower interest rates and a significant change in the company'scredit rating, it was decided to call the entire issue on June 30, 2020, and to issue new bonds. New 6% bonds were sold at 112.5513 to yield 5%; they have a par value of £800,000 andmature in 20 years. Interest payment dates are December 31 and June 30 for both old and new bonds. The financial year ends on December 31. Instructions a. Prepare journal entries to record the retirement of the old issue and the sale of the new issue on June 30, 2020. Unamortized discount of the old issue is £78,979 at the time of retirement. b. Prepare the entry required on December 31, 2020, to record the payment of the first 6 months' interest and the amortization of discount or premium on the bonds.
On June 30, 2011, Mendenhal plc issued 8% bonds with a par value of £600,000 due in 20 years. They were issued at 82.8414 to yield 10% and were callable at 104 at any date after June 30, 2019. Because of lower interest rates and a significant change in the company'scredit rating, it was decided to call the entire issue on June 30, 2020, and to issue new bonds. New 6% bonds were sold at 112.5513 to yield 5%; they have a par value of £800,000 andmature in 20 years. Interest payment dates are December 31 and June 30 for both old and new bonds. The financial year ends on December 31.
Instructions
a. Prepare
b. Prepare the entry required on December 31, 2020, to record the payment of the first 6 months' interest and the amortization of discount or premium on the bonds.
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