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Starstruck company in Europe

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Starstruck company operates using the euro as their currency. For the most recent year ending December 31, 2011 Starstruck reported the following Loans and borrowings data:

Loans and borrowings (noncurrent liabilities) Euros (in millions)
Loans and borrowings, December 31, 2011 balance 7,656
Proceeds from issuance of loans and borrowings 5,280
Repayments of loans and borrowings in 2011 (3,275)

With the above information in mind and the fact that par value on the repaid loans of 2011 was â?¬ 2,950 with a â?¬ 27 premium which would have been the correct journal entry for the repayment?

Entry Account and Description Debit Credit
1 Bonds Payable 2,950
Premium on Bonds Payable 325
Cash 3,275

2 Cash 2,950
Loans and Borrowings 2,950

3 Loans and Borrowings 2,950
Premium on Loans and Borrowings 27
Loss on Loans and Borrowings Retirement 298
Cash 3,275

4 Cash 2,977
Premium on Loans and Borrowings 27
Loans and Borrowing 2,950

CHOICES...
3 is the correct journal entry
4 is the correct journal entry
2 is the correct journal entry
1 is the correct journal entry

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JE 3 is correct. Here is why.

The bonds prior to retirement would have been:

Bonds Payable..............................2,950
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Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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