O n January 1, 2018, through December 31, 2023?On January 1, 2018, Shay issues $

Question

On January 1, 2018, through December 31, 2023?On January 1, 2018, Shay issues $370,000 of 12%, 12-year bonds at a price of 97.50. Six years later, on January 1, 2024, Shay retires 20% of these bonds by buying them on the open market at 105.00. All interest is accounted for and paid through December 31, 2023, the day before the purchase. The straight-line method is used to amortize any bond discount.

1. How much does the company receive when it issues the bonds on January 1, 2018?
2. What is the amount of the discount on the bonds at January 1, 2018?

3. How much amortization of the discount is recorded on the bonds for the entire period from January 1, 2018, through December 31, 2023?

4. What is the carrying (book) value of the bonds and the carrying value of the 20% soon-to-be-retired bonds as of the close of business on December 31, 2023?

5. How much did the company pay on January 1, 2024, to purchase the bonds that it retired?  
6. What is the amount of the recorded gain or loss from retiring the bonds?

7. Prepare the journal entry to record the bond retirement at January 1, 2024.
  

Explanation / Answer

Solution:

Part 1 --- How much does the company receive when it issues the bonds on January 1, 2018

Face Value of the Bonds = $370,000

Coupon Rate = 12%

Issue Price of the bonds = Face Value x 97.5% = $370,000 * 97.5% = $360,750

Amount to be received by the company on issuance of the bonds = $360,750

Part 2 –

The amount of the discount on the bonds at January 1, 2018 = Face Value $370,000 – Issue Price $360,750 = $9,250

Here, issue price is less than face value, it means bonds are issued at discount.

Part 3 –

Amortization of the discount is recorded on the bonds for the entire period from January 1, 2018, through December 31, 2023 = Total Discount = $9,250

Part 4 –

the carrying (book) value of the bonds and the carrying value of the 20% soon-to-be-retired bonds as of the close of business on December 31, 2023

Entire Group

Retired 20%

Par Value

$370,000

$74,000

Remaining Discount

0

0

Carrying Value

$370,000

$74,000

Part 5 ---

the company pay on January 1, 2024, to purchase the bonds that it retired = Par Value of the 20% Bonds x 105%

= $74,000 * 105%

= $77,700

Part 6 –

the amount of the recorded gain or loss from retiring the bonds is = Total Amount paid to retire the bonds $77,700 – Par Value of 20% Retired Bonds $74,000

Loss from retiring the bonds = $3,700

Part 7 –

The journal entry to record the bond retirement at January 1, 2024

Date

General Journal

Debit

Credit

Jan.1, 2024

Bonds Payable (Par Value of 20% Retired Bonds)

$74,000

Loss from Retiring of Bonds

$3,700

   Cash (Total Amount paid to retire the bonds)

$77,700

(To record retirement of 20% bonds)

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Entire Group

Retired 20%

Par Value

$370,000

$74,000

Remaining Discount

0

0

Carrying Value

$370,000

$74,000

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