Exercise 14-18

On June 30, 2010, Concord Limited issued 11.25% bonds with a par value of $804,000 due in 20 years. They were issued at 96 and were callable at 104 at any date after June 30, 2017. Because of lower interest rates and a significant change in the companys credit rating, it was decided to call the entire issue on June 30, 2017 and to issue new bonds. New 10% bonds were sold in the amount of $1 million at 103; they mature in 20 years. The company follows ASPE and uses straight-line amortization. The interest payment dates are December 31 and June 30 of each year.

a)Prepare journal entries to record the retirement of the old issue and the sale of the new issue on June 30, 2017.

b)Prepare the entry required on December 31, 2017 to record the payment of the first six months of interest and the amortization of the bond premium.