Answer:
issuance entry:
cash 2,850,000 debit
discount on BP 150,000 debit
bonds payable 3,000,000 credit
--to record issuance--
bonds payable 600,000 debit
loss on redemption 30,000 debit
interest expense 56,250 debit
cash 662,250 credit
discount on BP 24,000 credit
--to record redemption ---
Explanation:
proceeds at issuance : $3,000,000 x 95/100 = 2,850,000
the difference will be the discount.
Now, when the bonds are retired we have to check the weight:
3,000,000 --> 120,000
600,000 --> 120,000/3,000,000 x 600,000 = 24,000
<u><em>cash outlay</em></u> 600,000 x 101/100 = 606,000
loss redemption
we pay 606,000
for bonds which are worth: 600,000 - 24,000 = 576,000
The loss is the difference.
then, we calcualte the accrued interest:
principal x rate x time
3,000,000 x 7.5% x 3/12 = 56,250
this will be an interest expense
as well as an additional cash outlay
