Question

Jason Day Company had bonds outstanding with a maturity value of $300,000. On April 30, 2017, when these bonds had an unamortized discount of $10,000, they were called in at 104. To pay for these bonds, Day 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 103 (face value $300,000).

Instructions
Ignoring interest, compute the gain or loss and record this refunding transaction.
(AICPA adapted)

Answer 1

Loss on bond redemption is $22,000

Dr bonds payable $300,000

Dr loss on redemption $22,000

Cr cash $312,000

Cr discount on bonds payable $10,000

Step-by-step explanation:

The computation of the gain (loss) on the refunding arrangement is shown below:

Amount paid on redemption($300,000*104%) ($312,000)

carrying value of the bond $290,000

loss on redemption ($22,000)

Carrying value of the bond is the face value of $300,000 minus unamortized discount of $10,000