Exercise 14-12 On January 2, 2012, Vaughn Corporation issued $1,200,000 of 10% b

Question

Exercise 14-12 On January 2, 2012, Vaughn Corporation issued $1,200,000 of 10% bonds at 96 due December 31, 2021, Interest on the bonds is payable annually each December 31. The discount on the bonds is also being amortized on a straight-line basis over the 10 years. (Straight-line is not materially different in effect from the preferable "interest method".) The bonds are callable at 101 (i.e., at 101% of face amount), and on January 2, 2017, Vaughn called $720,000 face amount of the bonds and redeemed them. Ignoring income taxes, compute the amount of loss, if any, to be recognized by Vaughn as a result of retiring the $720,000 of bonds in 2017. (Round answer to O decimal places, e.g. 38,548.) Loss on redemption s Prepare the journal entry to record the redemption. (Round answers to o decimal places, e.g. 38,548. 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 anuary 2, 2017 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT

Explanation / Answer

Unamortized Amount

Original amount of discount:

48000

1200000*0.04

Number of years

10

Amortization per year

4800

Amount of discount unamortized

4800 x 5

24000

Date

Journal entry

Debit

Credit

02-Jan-17

Bonds Payable

1200000

Loss on Redemption of Bonds(bal.fig)

36000

        Discount on Bonds Payable

24000

        Cash (1200000*101%)

1212000

Unamortized Amount

Original amount of discount:

48000

1200000*0.04

Number of years

10

Amortization per year

4800

Amount of discount unamortized

4800 x 5

24000

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