On September 15, 2020, the Corporation sold bonds with an aggregate principal amount of $500,000,000 bearing a 14% interest rate. The bonds will mature on September 15, 2030, and are unsecured subordinated obligations of the Corporation. Interest is payable semiannually on March 15 and September 15. The Corporation may redeem the bonds at any time beginning September 15, 2020, as a whole or from time to time in part, through maturity, at specified redemption prices ranging from 112% of principal in declining percentages of principal amount through 2027 when the percentage is set at 100% of principal amount. The cost of issuing the bonds, totaling $1,000,000, and the discount of $5,000,000 are being amortized over the life of the bonds. Amortization of these items for the year ended December 31, 2021, was $1,212,000. During the year ended December 31, 2021, the Corporation repurchased, in open market transactions, $200,000,000 in face amount of the bonds for $219,333,000. The unamortized cost of issuing these bonds and the unamortized discount, totaling $5,864,000 have been deducted in the current period. From the information provided by Olswanger in Note 12, you should be able to recreate some of the journal entries the company recorded in connection with this bond issue. Required: 1. Prepare the journal entry for the issuance of these bonds on September 15, 2020. 2. Prepare the journal entry for the repurchase of these bonds, assuming the date of repurchase was September 15, 2021. The cash paid to repurchase the bonds was $219,333,000.
On September 15, 2020, the Corporation sold bonds with an aggregate principal amount of $500,000,000 bearing a 14% interest rate. The bonds will mature on September 15, 2030, and are unsecured subordinated obligations of the Corporation. Interest is payable semiannually on March 15 and September 15. The Corporation may redeem the bonds at any time beginning September 15, 2020, as a whole or from time to time in part, through maturity, at specified redemption prices ranging from 112% of principal in declining percentages of principal amount through 2027 when the percentage is set at 100% of principal amount. The cost of issuing the bonds, totaling $1,000,000, and the discount of $5,000,000 are being amortized over the life of the bonds. Amortization of these items for the year ended December 31, 2021, was $1,212,000. During the year ended December 31, 2021, the Corporation repurchased, in open market transactions, $200,000,000 in face amount of the bonds for $219,333,000. The unamortized cost of issuing these bonds and the unamortized discount, totaling $5,864,000 have been deducted in the current period. From the information provided by Olswanger in Note 12, you should be able to recreate some of the journal entries the company recorded in connection with this bond issue. Required: 1. Prepare the journal entry for the issuance of these bonds on September 15, 2020. 2. Prepare the journal entry for the repurchase of these bonds, assuming the date of repurchase was September 15, 2021. The cash paid to repurchase the bonds was $219,333,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Note 12: Bonds
On September 15, 2020, the Corporation sold bonds with an aggregate principal amount of $500,000,000 bearing a 14%
interest rate. The bonds will mature on September 15, 2030, and are unsecured subordinated obligations of the
Corporation. Interest is payable semiannually on March 15 and September 15. The Corporation may redeem the bonds at
any time beginning September 15, 2020, as a whole or from time to time in part, through maturity, at specified
redemption prices ranging from 112% of principal in declining percentages of principal amount through 2027 when the
percentage is set at 100% of principal amount. The cost of issuing the bonds, totaling $11,000,000, and the discount of
$5,000,000 are being amortized over the life of the bonds. Amortization of these items for the year ended December 31,
2021, was $1,212,000.
During the year ended December 31, 2021, the Corporation repurchased, in open market transactions, $200,000,000 in
face amount of the bonds for $219,333,000. The unamortized cost of issuing these bonds and the unamortized discount,
totaling $5,864,000 have been deducted in the current period.
From the information provided by Olswanger in Note 12, you should be able to recreate some of the journal entries the
company recorded in connection with this bond issue.
Required:
1. Prepare the journal entry for the issuance of these bonds on September 15, 2020.
2. Prepare the journal entry for the repurchase of these bonds, assuming the date of repurchase was September 15, 2021.
The cash paid to repurchase the bonds was $219,333,000.
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