On January 1, 2017, Shay issues $270,000 of 9%, 15-year bonds at a price of 97.0

Question

On January 1, 2017, Shay issues $270,000 of 9%, 15-year bonds at a price of 97.00. Six years later, on January 1, 2023, Shay retires 30% of these bonds by buying them on the open market at 105.00. 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.

1. How much does the company receive when it issues the bonds on January 1, 2017?

2. What is the amount of the discount on the bonds at January 1, 2017?

3. How much amortization of the discount is recorded on the bonds for the entire period from January 1, 2017, through December 31, 2022?

5. How much did the company pay on January 1, 2023, 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, 2023. (Record the retirement of 30% of the bonds before maturity on January 1, 2023.)

Explanation / Answer

Req 1. Par value of Bonds 270000 Issue Price 97 Cash received on Issue 261900 Rreq 2: Maturity value 270000 Less: Issue price 261900 Total Discount on Bonds 8100 Req 3: Period expires (Jan 2017-Dec2022) 6 years Annual Amortization of discount (8100/15) 540 Discount Amortized in 6 years (540*6) 3240 Req 5: Maturity value of Bonds retired (270000*30%) 81000 Redemption price 105 Amount to be paid on Bonds retired 85050 Req 6: Book value of Bonds retired 81000 Less: Unamortized discount 1458 (8100-3240)*30% Book value of Bonds retired 79542 Less: Amount paid on retirement 85050 Loss on retirement 5508 Req 7. Journal entry Bonds payable Account Dr. 81000 Lloss on retirement of bonds Dr. 5508      Cash account 85050      Discount on bonds payable 1458

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