Question

Concord Company had bonds outstanding with a face value of $325,000. On April 30, 2017, when these bonds had an unamortized discount of $15,000, they were called in at 104. To pay for these bonds, Concord had issued other bonds a month earlier bearing a lower interest rate. The newly issued bonds had a life of 10 years. The new bonds were issued at 102 (face value $325,000).

Required:
Compute the gain or loss.

Answer 1

Loss on bonds redemption is $21,500

Step-by-step explanation:

Note the cash received from the new bonds would be debited to the cash account while the cash paid on the bonds called would be credited to the cash account as it is an outflow of cash.

Also, the unamortized discount which was a debit entry the initial bonds were issued would be credited to the discount on the bonds payable account.

Cash received from the new issuance of bonds=$325,000*102%

Cash received from the new issuance of bonds=$331,500

Cash paid on bonds called=$325,000*104%

Cash paid on bonds called=$338,000

Dr cash $331,500

Dr loss on redemption(bal fig) $21,500

Cr cash $338,000

Cr discount on bonds payable $15,000