Question

On January 2, 2012, Grouper Corporation issued $1,100,000 of 10% bonds at 98 due December 31, 2021. Interest on the bonds is payable annually each December 31. The discount on the bonds is also being amortized on a straight-line basis over the 10 years. (Straight-line is not materially different in effect from the preferable "interest method".) The bonds are callable at 101 (i.e., at 101% of face amount), and on January 2, 2017, Grouper called $660,000 face amount of the bonds and redeemed them. Ignoring income taxes, compute the amount of loss, if any, to be recognized by Grouper as a result of retiring the $660,000 of bonds in 2017

Answer 1

bonds payable 660,000 debit

loss on redemption 13,200 debit

cash 666,600 credit

discount on bonds payable 6,600 credit

Step-by-step explanation:

discount at issuance:

face value 1,100,000

issued at 98: 1,078,000

discount 22,000

the discount is amortized with straight line method

discount at call date:

2017 - 2012 = 5 year

22,000 x 5/10 = 11,000 discount at Jan 2nd,2017

discount of 660,000 bonds at Jan 2nd,2017

1,100,000 --> 11,000

660,000 --> 6,600

carrying value 660,000 - 6,600 = 653,400

bonds are called at 101

660,000 x 101/100 = 666,600‬

loss on redemption:

653,400 - 666,600 = 13,200