On January 1, 2014 Victory Falls Company issued $2,100,000 in bonds that mature in 5 years. The bonds have a stated interest rate of 8% and pay interest quarterly each year. When the bonds were sold, the market rate of interest was 6%. These bonds, when issued and sold, contained a call feature, which allowed the company to retire the bonds early, if they elected, for a one-time payment equal to 1% of the book value at the time of retirement. Victory Falls Company elected to retire the bonds early on June 30, 2015, after the final interest payment. Give the journal entries to record the interest expense on June 30, 2015 first, and then the retirement of bonds using the effective interest method.
On January 1, 2014 Victory Falls Company issued $2,100,000 in bonds that mature in 5 years. The bonds have a stated interest rate of 8% and pay interest quarterly each year. When the bonds were sold, the market rate of interest was 6%. These bonds, when issued and sold, contained a call feature, which allowed the company to retire the bonds early, if they elected, for a one-time payment equal to 1% of the book value at the time of retirement.
Victory Falls Company elected to retire the bonds early on June 30, 2015, after the final interest payment. Give the
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