The long-term liability section of Eastern Post Corporation’s balance sheet as of January 1, 2018, included 12% bonds having a face amount of $42.4 million and a remaining premium of $6.6 million. On January 1, 2018, Eastern Post retired some of the bonds before their scheduled maturity.
Required:Prepare the journal entry by Eastern Post to record the redemption of the bonds under each of the independent circumstances below:1. Eastern Post called half the bonds at the call price of 104 (104% of face amount).2. Eastern Post repurchased $11.7 million of the bonds on the open market at their market price of $12.2 million.

Explanation:

Carrying amount of the bonds at January 1, 2018 = $42.4 million + $6.6 million = $49m, so half of that is $24.5m. Selling price was at 104, so proceeds from the sale = $21.2m x 104% = $22m, so there's a gain of $24.5m - $22m or $2.5m

Dr Bonds payable $21.2m

Dr Premium on bonds payable $3m

Cr Cash $22m

Cr Gain on redemption of bonds $2.5m

2. Eastern Post repurchased $11.7 million of the bonds on the open market at their market price of $12.2 million

We are repurchasing $11.7 m out of $42.4m here, so remember to use only 25% of the amounts given to you in the question.

Dr Bonds payable $11.7m

Dr Premium on bonds payable $1.5m

Cr Cash $12.2 m

Cr Gain on redemption of bonds $1m