Question 1 Novak Company had bonds outstanding with a maturity value of $272,000

Question

Question 1 Novak Company had bonds outstanding with a maturity value of $272,000. 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, Novak 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 $272,000) Ignoring interest, compute the gain or loss Loss on redemption Ignoring interest, record this refunding transaction. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit (To record redemption of bonds payable) To record issuance of new bonds)

Explanation / Answer

Loss on redemption = (272000*1.05)-(272000-10000)= $23600 Bonds payable 272000 Loss on redemption of bonds 23600           Discount on Bonds payable 10000           Cash 285600 Cash 280160 =272000*1.03        Bonds payable 272000        Premium on Bonds payable 8160

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