On June 30, 2004, Auburn Limited issued 12% bonds with a par value of $800,000 due in

Question:

On June 30, 2004, Auburn Limited issued 12% bonds with a of $800,000 due in 20 years. They were issued at 98 and were callable at 104 at any date after June 30, 2011. 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 $1 million at 102; they mature in 20 years. The company follows private enterprise and uses straight-line amortization. The interest payment dates are December 31 and June 30 of each year.
Instructions
(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 six months of interest and the amortization of the bond premium.
GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the... 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,...