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Financial Accounting - Bond retirement journal entries
Asked Nov 17, 2011, 07:07 AM
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It is now January 1, 2011, and Cartoons Limited is considering a $10 million share issue. The company would like to improve its debt / equity ratio before proceeding with the issue. Cartoons’ Chief Financial Officer has suggested to the board of directors that the company could retire its $5 million of 9%, 10-year bonds. Currently, interest rates have risen, and therefore the bonds could be retired at 99%. The bonds were issued when the yield was 8%, and pay interest semi-annually on June 30 and December 31. The bonds will mature on June 30, 2012. Cartoons Limited’s accounting policy is to amortize any bond premium or discount using the effective interest method. The board of directors would like to know what the journal entry would be if the bonds were retired immediately on January 1, 2011. |
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