Question

Buffalo Company had bonds outstanding with a maturity value of $307,000. On April 30, 2017, when these bonds had an unamortized discount of $10,000, they were called in at 105. To pay for these bonds, Buffalo 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 $307,000). Ignoring interest, compute the gain or loss. Loss on redemption $ Ignoring interest, record this refunding transaction.

Answer 1

bonds carrying value = $307,000 - $10,000 = $297,000

the journal entry to record the bond redemption:

April 30, 2017, redemption of bonds

Dr Bonds payable 307,000

Dr Loss on redemption of bonds 25,350

Cr Cash 322,350

Cr Discount on bonds payable 10,000

the journal entry to record the issuance of bonds:

March 31, bonds were issued

Dr Cash 313,140

Cr bonds payable 307,000

Cr Premium on bonds payable 6,140