Question

On January 1, 2017, Shay issues $410,000 of 12%, 20-year bonds at a price of 97.50. Six years later, on January 1, 2023, Shay retires 20% of these bonds by buying them on the open market at 105.00. All interest is accounted for and paid through December 31, 2022, the day before the purchase. The straight-line method is used to amortize any bond discount.1. How much does the company receive when it issues the bonds on January 1, 2017?2. What is the amount of the discount on the bonds at Hanuary 1, 2017?3. How much amortization of the discount is recorded on the bonds for the entire period from Jnauary 1, 2017 through December 31, 2022?4. What is the carrying value of the bonds as of the close of business on December 31, 2022? What is the carrying value of the 20% soon-to-be-retired bonds on this same date?5. How much did the company pay on January 1, 2023 to purchase the bonds that it retired?6. What is the amount of the recorded gain or loss from retiring the bonds?7. Prepare the journal entry to record the bond retirement at JAnuary 1, 2023.

Answer 1

a) $ 399,750

b) $ 10,250

c) $ 512.5

d) $ 402,312.5‬

e) $ 86,100

f) $ 5,637.5

g)

bonds payable 82,000 debit

loss on redemption 5,637.5 debit

discount on bonds payable 1,537.5 credit

cash 86,100 credit

Step-by-step explanation:

a) the bonds are isued at 97.50%

410,000 x 97.50% = 399,750

b) discount difference between cash proceeds and face value:

410,000 - 399,750 = 10,250

c) if the bonds are discounted using straight line:

10,250 / 20 years = 512.5

d)

at 2022 there is 5 amortization:

512.5 x 5 = 2,562.5

discount value: 10,250 - 2,562.5 = 7,687.5

carrying value 410,000 - 7,687.5 = 402,312.5‬

e)

410,000 bonds payable x 20% at 105% = 86,100

carrying book value of 20%:

402,312.5 x 20% = 80,462.5

f) loss on redemption: 5,637.5

g)

20% of the face value

410,000 x 20% = 82,000

20% of the discount:

7,687.5 x 20% = 1,537.5

loss on redemption 5,637.5

cash disbursement 86,100