Answer:
Cash 2,000,000
Bonds Payable2,000,000
To record Issuance of bonds
Interest expense 90,000
Cash 90,000
To record payment of bonds
Bonds Payable 2,000,000
Cash 1,940,000
Gain on Redemption 60,000
To record the call of the bonds at 97
Explanation:
The bonds were issued at par, we have no information to oppose that.
The interst will be 2,000,000 x 9% x 1/2 = 90,000
Notice there is 2 payment per year, so the interest are split in two
Bonds called at 97:
2,000,000 x .97 = 1,940,000
Book value ofthe bonds 2,000,000
gain on redemption 60,000
We pay obligation valued at 2,000,000 for 1,940,000 That's why we recognize a gain, we paid the debt cheaper.
