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Prepare journal entries to record the issuance

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Question - Issuance and Retirement of Bonds; Income Statement Presentation

Dunnel Company issued its 8%, 20-year mortgage bonds in the principal amount of $1,000,000 on January 2, 2000, at a discount of $60,000, which it proceeded to amortize by charges to expense over the life of the issue on a straight-line basis. The indenture securing the issue provided that the bonds could be called for redemption in total but not in part at any time before maturity at 110% of the principal amount, but it did not provide for any sinking fund. On December 1, 2014, the company issued its 10%, 25-year debenture bonds in the principal amount of $2,500,000 at 101, and the proceeds were used to redeem the 8%, 20-year mortgage bonds on January 2, 2015. The indenture securing the new issue did not provide for any sinking fund or for retirement before maturity.

Instructions

(a) Prepare journal entries to record the issuance of the 10% bonds and the retirement of the 8% bonds.

(b) Indicate the income statement treatment of the gain or loss from retirement and the note disclosure required.

Reference no: EM132059641

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