Question

On January 1, 2017, Shay issues $330,000 of 12%, 15-year bonds at a price of 97.00. Six years later, on January 1, 2023, Shay retires 20% of these bonds by buying them on the open market at 104.50. 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. 7. Prepare the journal entry to record the bond retirement at January 1, 2023.

Answer 1

Answer and Explanation:

As per the data given in the question, Journal entries are as follows:

Jan 1

Bonds payable A/C Dr. $66,000

Loss on bonds' redemption A/c Dr. $4,158

To Discount on bonds payable A/c $1,188

($5,940*20%)

To Cash A/c $68,970

($66,000*104.5%)

(To record retirements of bonds before maturity)

Computation

Discount on bonds = $330,000 × 3% = $9,900

Amortized bond discount = $9,900 ÷ 15 × 6

= $3,960

Unamortized bond discount = $9,900 - $3,960

= $5,940

Face value of bonds retired = $330,000 × 20%

= $66,000