Effective April 1, 2016. The Syracuse Corporation, which has a year- end of December 31st, authorized $1.500.000 of callable, mortgage bonds (secured by $2,200,000 of property and equipment, at market value). The bonds paid interest at a rate of eight percent per year and had a term of six years. Interest was payable each September 30th and March 31. On July 1, 2017, Syracuse issued 1,000 of the bonds in exchange for cash in the total amount of $906,000. On October 1, 2019, Syracuse called the bonds and paid the current bondholders $1,150,000 in cash. Prepare the journal entries related to the bonds that the corporation entered into its records during the period April 1, 2016 through December 31, 2017 In addition, prepare the journal entry that was recorded when the bonds were redeemed in October 2019.

April 1 2016

No Entry

July 1, 2017

Dr Cash $906,000

Dr Discount on bonds payable $94,000

Cr Bonds payable $1,000,000

Sep 30 2017

Dr Interest Expense $23,917

Cr Discount on bonds payable $3,917

Cr Cash $20,000

Dec 31,2017

Dr Interest Expense $23,917

Cr Discount on bonds payable $3,917

Cr Interest payable $20,000

October 1 2019

Dr Bonds payable $1,000,000

Dr Loss on early extinguishment of bonds $208,750

Cr Discount on bonds payable $58,750

Cr Cash $1,150,000

Explanation:

Preparation of the journal entries related to the bonds that the corporation entered into its records during the period April 1, 2016 through December 31, 2017

April 1 2016

No Entry

July 1, 2017

Dr Cash $906,000

Dr Discount on bonds payable $94,000

($1,000,000-$906,000)

Cr Bonds payable $1,000,000

(Being to record issue bond for cash $906,000 and discount on bonds)

Sep 30 2017

Dr Interest Expense $23,917

[(1,000,000*8%*3/12)+($94,000/72months*3)]

(=$20,000+$3,917)

Cr Discount on bonds payable $3,917

($94,000/72months*3)

Cr Cash $20,000

(1,000,000*8%*3/12)

(Being to record interest paid and discount amortized)

Dec 31,2017

Dr Interest Expense $23,917

[(1,000,000*8%*3/12)+($94,000/72months*3)]

(=$20,000+$3,917)

Cr Discount on bonds payable $3,917

($94,000/72months*3)

Cr Interest payable $20,000

(1,000,000*8%*3/12)

(Being to record interest accrued and discount amortized)

Preparation of the journal entry that was recorded when the bonds were redeemed in October 2019

October 1 2019

Dr Bonds payable $1,000,000

Dr Loss on early extinguishment of bonds $208,750

($1,150,000+$58,750-$1,000,000)

Cr Discount on bonds payable $58,750

[$94,000-($94,000/72)*27]

($94,000-$35,250=$58,750)

Cr Cash $1,150,000

(Being to record Redemption of bonds and discount Amortized)

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