On April 1, 2015, Tequila Mockingbird Bar&Grill, Inc. issued $62,500 of 8-year b
ID: 2548982 • Letter: O
Question
On April 1, 2015, Tequila Mockingbird Bar&Grill, Inc. issued $62,500 of 8-year bonds payable at 95. The bonds bear interest at 4.8%. Interest is payable semi-annually on June 30 and December 31 each year.
Using all of the proceeds-not face value-from the bond issuance, on the same day, it purchased fixed assets for its operations, and allocated the proceeds from the bond issuance as follows:
75% for new kitchen equipment with a 10-year useful life, and a sales value of $3200, for which it uses straight-line
25% for new furniture with a 5-year useful life, and a salvage value is $1,500, for which it uses double-declining balance
On January 2, 2018, after it makes the required interest payment the required interest payment on bonds payable just for the Halibut Restaurant Co. redeems all of the bonds at 107. And, on the same date, it sells all of the equipment for $36,500.
What is the balance in Discount on Bonds Payable or Premium on Bonds Payable, whichever is applicable, on January 1, 2018, before any redemption occurred?
What is the gain or loss Just for the Halibut Restaurant Co would replication on the redemption of all of the bonds on January 2, 2018?
What is the gain or loss just for the Halibut Restaurant Co would replication on the sale of the equipment on January 2, 2018?
Explanation / Answer
1.Balance in Discount on Bonds on January1,2018 after the interest payment = $60,449.22
Working:
The amortization schedule for the bond issue is given below.
2. Loss on redemption of all the bonds = $64,824
Working:
3. Gain on sale of equipment on 1/2/2018 $3,975
Working:
Date Cash Interest Discount Balance of Book Value Face Value Payment Expense amortized discount 4/1/2015 3125.00 59375.00 62500.00 6/1/2015 750.00 847.66 97.66 3027.34 59472.66 62500.00 12/1/2015 750.00 945.31 195.31 2832.03 59667.97 62500.00 6/1/2016 750.00 945.31 195.31 2636.72 59863.28 62500.00 12/1/2016 750.00 945.31 195.31 2441.41 60058.59 62500.00 6/1/2017 750.00 945.31 195.31 2246.09 60253.91 62500.00 12/1/2017 750.00 945.31 195.31 2050.78 60449.22 62500.00 6/1/2018 750.00 945.31 195.31 1855.47 60644.53 62500.00 12/1/2018 750.00 945.31 195.31 1660.16 60839.84 62500.00 6/1/2019 750.00 945.31 195.31 1464.84 61035.16 62500.00 12/1/2019 750.00 945.31 195.31 1269.53 61230.47 62500.00 6/1/2020 750.00 945.31 195.31 1074.22 61425.78 62500.00 12/1/2020 750.00 945.31 195.31 878.91 61621.09 62500.00 6/1/2021 750.00 945.31 195.31 683.59 61816.41 62500.00 12/1/2021 750.00 945.31 195.31 488.28 62011.72 62500.00 6/1/2022 750.00 945.31 195.31 292.97 62207.03 62500.00 12/1/2022 750.00 945.31 195.31 97.66 62402.34 62500.00 4/1/2023 750.00 847.66 97.66 0.00 62500.00 62500.00 Face Value of the bond 62500.00 Issued at 95 Cash received = 62,500 x 95% 59375.00 Discount 3125.00 This will be amortized over 16 semi-annual periods.
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