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The balance sheet of Indian River Electronics Corporation as of December 31, 2020, included 12.25% bonds having a face amount of $90 million. The bonds had been issued in 2013 and had a remaining discount of $3 million at December 31, 2020. On January 1, 2021, Indian River Electronics called the bonds before their scheduled maturity at the call price of 102. Required: Prepare the journal entry by Indian River Electronics to record the redemption of the bonds at January 1, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

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Answer:

Bonds Payable (Dr.)  90,000,000

Loss on early extinguishment (Dr.) 4,800,000

Discount on B&P (Cr.) 3,000,000

Cash (Cr.) 91,800,000

Explanation:

The journal entry will be required to record the redemption of bonds of Indian Ricer Electronics Corporation.

Bonds Face Value = $90,000,000

Premium (102 - 100)  = $90,000,000 * 2/100 = $1,800,000

Total Cash Paid = $91,800,000

Loss on early extinguishment = $91,800,000 + $300,000 - $90,000,000

= $4,800,000  

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