Reference no: EM133060451
Question - Sarasota Company issued its 9%, 25-year mortgage bonds in the principal amount of $2,750,000 on January 2, 2006, at a discount of $151,000, 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 105% of the principal amount, but it did not provide for any sinking fund.
On December 18, 2020, the company issued its 12%, 20-year debenture bonds in the principal amount of $4,340,000 at 102, and the proceeds were used to redeem the 9%, 25-year mortgage bonds on January 2, 2021. The indenture securing the new issue did not provide for any sinking fund or for redemption before maturity.
Required -
(a) Prepare journal entries to record the issuance of (1) the 12% bonds and (2) the redemption of the 9% bonds.
(b) Indicate the income statement treatment of the gain or loss from redemption.
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