(Entries for Retirement and Issuance of Bonds) On June 30, 2002, Mendenhal Company issued 12% bonds with...

Question:

(Entries for Retirement and Issuance of Bonds) On June 30, 2002, Mendenhal Company issued 12% bonds with a par value of $600,000 due in 20 years. They were issued at 98 and were callable at 104 at any date after June 30, 2010. Because of lower interest rates and a significant change in the company’s credit rating, it was decided to call the entire issue on June 30, 2011, and to issue new bonds. New 10% bonds were sold in the amount of $800,000 at 102; they mature in 20 years. Mendenhal Company uses straight-line amortization. Interest payment dates are December 31 and June 30.

(a) Prepare journal entries to record the retirement of the old issue and the sale of the new issue on

June 30, 2011.

(b) Prepare the entry required on December 31, 2011, to record the payment of the first 6 months’ interest and the amortization of premium on the bonds.

Bonds
When companies need to raise money, issuing bonds is one way to do it. A bond functions as a loan between an investor and a corporation. The investor agrees to give the corporation a specific amount of money for a specific period of time in exchange... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...