Problem 14-15 Early extinguishment effective interest [L014-5 The long-term liab

Question

Problem 14-15 Early extinguishment effective interest [L014-5 The long-term liablity section of Twin Digital Corporation's balance sheet as of December 31, 2017, Inclu ount of $40 million and a remaining discount of $1 million. Disclosure notes indicate the bonds were issued to yield 12%. Interest expense is recorded at the effective interest rate and paid on January 1 and July 1 of each retired the bonds at 102 ($40.8 million) before their scheduled maturity year. On July 1.2018, Twin Digital Required: 1. & 2. Prepare the necessary journal entries for Twin Digital on July 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 dollar.) View transaction list Journal entry worksheet Record the semiannual interest. Note: Enter debits before credits. Credit General Journal Date July 01, 2018

Explanation / Answer

Journal Entry ( $ in million) Date Account Tittle Debit Credit Calculation July-1-18 Interest expense 2.4 =40*12%/2           Discount on bonds payable 0.4           Cash 2 =40*10%/2 July-1-18 Bonds payable 40 Loss on early extinguishment 1.4           Discount on bonds payable 0.6 (1-0.40)           Cash 40.8

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