Concord Company had bonds outstanding with a maturity value of $311,000. On April 30, 2017, when these bonds had an unamortized discount of $11,000, they were called in at 105. To pay for these bonds, Concord had issued other bonds a month earlier bearing a lower interest rate. The newly issued bonds had a life of 10 years. The new bonds were issued at 101 (face value $311,000). Ignoring interest, record the journal entries for the redemption of the old bonds and the issuance of the new bonds.

Redemption of Old Bonds

Date Accounts DR CR

4-30-17

Issuance of New Bonds

Date Accounts DR CR

3-30-17

Redemption of Old Bonds

4-30-17   Bonds Payable                              $311000 Dr

              Loss on Bond Redemption           $26550 Dr

                       Discount on Bonds Payable        $11000 Cr

                       Cash                                                $326550 Cr

Issuance of New Bonds

3-30-17   Cash                                                 $314110 Dr

                     Premium on Bonds Payable            $3110 Cr

                     Bonds Payable                                  $311000 Cr

Explanation:

Redemption of Bonds Payable

The maturity value for bonds payable is equal to the face value of these bonds. This means that the face value of old bonds was $311000.

The bonds were carrying a discount. Thus, the carrying value of bonds was

Carrying value = Face value - Discount

Carrying value = 311000 - 11000    =  $300000

Bonds with a carrying value of $300000 were redeemed at 105% of the face value. The cash paid for redemption is,

Cash paid = 311000 * 105%  =  326550

Thus, there was a loss on redemption of = 326550  -  300000  = $26550

Issuance of Bonds Payable

The bonds were issued at 101% of the face value which means they were issued at a premium.

The amount of premium on these bonds is,

Premium = Carrying value - Face value

Premium = 311000 * 101%  - 311000  

Premium = $3110

reducing the scale of the market for a new product.