On April 1, 2015, Just for the Halibut Restaurant Co. issued $62,500 of 8- year

Question

On April 1, 2015, Just for the Halibut Restaurant Co. issued $62,500 of 8- year bonds payable at 92 . The bonds bear interest at 5.6%. 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: 80% for new kitchen equipment with a 10-year useful life, and a salvage value of $3,500, for which it uses double-declining balance 20% for new furniture with a 5-year useful life, and a salvage value of $1.250, for which it uses straight-line On January 2. 2018, after it makes the required interest payment on the bonds payable, Just for the Halibut Restaurant Co. redeems all of the bonds at 103. And, on the same date, it sells all of the equipment for $26.200. QUESTIONS: 1. What is the balance in Discount on Bonds Payable or Premium on Bonds Payable, whichever is applicable, on January 1, 2018, before any 2. What is the gain or loss Just for the Halibut Restaurant Co. would report 3. What is the gain or loss Just for the Halibut Restaurant Co would report 4. What is the balance in the Accumulated Depreciation account for the redemption occurred? (3 points) on the redemption of all of the bonds on January 2, 2018? (2 points) on the sale of the equipment on January 2, 2018? (3 points) furniture as of December 31, 2017? (2 points)

Explanation / Answer

1) Amount of discount provided on the bond = 62500*92/100 = 57500 discount so provided = 57500-62500 = -5000 Taking the amortisation of the discount, taking on straight line basis = 5000/8 = $625 per year The balance in Discount on Bonds Payable on Jan 2 2018 = $5000 - (625*3)=$3125 2) Loss on redemption of all of the bonds on January 2, 2018 = 625 * premium (103 - 100) + 3125 balance in discount = $5000 3) Cost of equipment = 57500*0.80 = 46000 Depreciation amount of three years at (10%*2=20%) : 2015 46000*20% 9200 36800 balance 2016 36800*20% 7360 29440 2017 29440*20% 5888 23552 Bal. on Jan1 2018 gain on sale of equipment = 26200 -23552= 2648 4)Cost of furniture = 57500*0.20 = 11500 Straight line depreciation per year = 11500/5=2300 Balance in Accumulated Depreciation a/c on Dec 31 2017 = 2300*3=$6900

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