ACC 304 Course Great Wisdom / tutorialrank.com ACC 304 Course Great Wisdom / tutorialrank.com | Page 266

The effect of recording the fair value option would result in
unrealized holding

7) Holiday Company issued its 7%, 25-year mortgage bonds
in the principal amount of $3,019,000 on January 2, 2000, at a
discount of $158,000, which it proceeded to amortize by charges
to expense over the life of the issue on a straight-line basis. The
indenture securing the issue provided that the bonds could be
called for redemption in total but not in part at any time before
maturity at 104% of the principal amount, but it did not provide
for any sinking fund.

On December 18, 2014, the company issued its 11%, 20-year
debenture bonds in the principal amount of $4,277,000 at 101,
and the proceeds were used to redeem the 7%, 25-year mortgage
bonds on January 2, 2015. The indenture securing the new issue
did not provide for any sinking fund or for redemption before
maturity.

(a) Prepare journal entries to record the issuance of (1) the 11%
bonds and (2) the redemption of the 7% bonds. (If no entry is