Early extinguishment of debt
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The long-term liability section of Twin Digital Corporation's balance sheet as of December 31, 2015, included 12% bonds having a face amount of $20 million and a remaining discount of $1 million. Disclosure notes indicate the bonds were issued to yield 14%.
Interest expense is recorded at the effective interest rate and paid on January 1 and July 1 of each year. On July 1, 2016, Twin Digital retired the bonds at 102 ($20.4 million) before their scheduled maturity.
Required:
1. Prepare the journal entry by Twin Digital to record the semiannual interest on July 1, 2016.
2. Prepare the journal entry by Twin Digital to record the redemption of the bonds on July 1, 2016.
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Solution Summary
The Solution uses Twin Digital Corporation's balance sheet to record journal entries for semi annual interest and redemption of bonds.
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