Please answer questions with detialed calculations. Thank you, 14-14 - LO14-5 Th

Question

Please answer questions with detialed calculations.

Thank you, 14-14 - LO14-5

Three years ago American Insulation Corporation issued 10 percent. $850,000. 12-year bonds for $795,000. Debt issue costs were $10,000. American Insulation exercised its call privilege and retired the bonds for $840,000. The corporation uses the straight-line method both to determine interest and to amortize debt issue costs. Prepare the journal entry to record the call of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

Bond Payable A/c Dr. $850000

Loss on Early Extinguuishment A/c Dr. $38750

To Debt issue Costs A/c Cr $7500

TO Discount on bonds payable A/c Cr. $41250

To Cash A/c CR. $840000

WORKING NOTES

Debt issue Costs => 10000 * 9/12 => 7500

Discount on bonds payable => (850000 - 795000)* 9/12 => 41250

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