Stanton Heights Corporation issued $95,000 face value bonds at a discount of $5,

Question

Stanton Heights Corporation issued $95,000 face value bonds at a discount of $5,000. The bonds contain a call price of 102. Stanton Heights decides to redeem the bonds early when the unamortized discount is $2,750.

1. Calculate Stanton Heights Corporation’s gain or loss on the early redemption of the bonds.

Grasso Corp. reported accounts receivable of $38,000 on its December 31, 2016, balance sheet. On December 31, 2017, accounts receivable had decreased to $29,000. Sales for the year amounted to $57,000. What is the amount of cash collections that Grasso will report in the Operating Activities section of its 2017 statement of cash flows assuming that the direct method is used?

$

Explanation / Answer

1) This would be the journal entry -

To Cash (Amount paid) (95000 x 102%)

To Discount on Bonds (remaining amount written off)

2) Assuming all sales are on credit, we have -

Cash Collections = Opening accounts receivables + Credit Sales - Closing Accounts receivables

or, Cash Collections = $38,000 + $57,000 - $29,000 = $66,000

Particulars Debit Credit Bonds payable (Face value of bonds) 95,000 Loss on redemption (Balancing figure) 4,650

To Cash (Amount paid) (95000 x 102%)

96,900

To Discount on Bonds (remaining amount written off)

2,750

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