The long-term liability section of Eastern Post Corporation’s balance sheet as o
ID: 341397 • Letter: T
Question
The long-term liability section of Eastern Post Corporation’s balance sheet as of January 1, 2018, included 9% bonds having a face amount of $44.8 million and a remaining premium of $7.2 million. On January 1, 2018, Eastern Post retired some of the bonds before their scheduled maturity.
Required:
Prepare the journal entry by Eastern Post to record the redemption of the bonds under each of the independent circumstances below:
1. Eastern Post called half the bonds at the call price of 102 (102% of face amount).
2. Eastern Post repurchased $11.2 million of the bonds on the open market at their market price of $11.7 million.
Explanation / Answer
1. Eastern Post called half the bonds at the call price of 102 (102% of face amount).
You're dealing with only half the bonds, so remember to use half of all the figures given to you.
Carrying amount of the bonds at December 31, 2010 = $44.8 million + $7.2 million = $52m, so half of that is $26m. Selling price was at 102, so proceeds from the sale = $22.4m x 102% = $22.848m,
so there's a gain of $26m - $22.848m or $3.152m
Dr Bonds payable $22.4m
Dr Premium on bonds payable $3.6m
Cr Cash $22.848m
Cr Gain on redemption of bonds $3.152m
2. Eastern Post repurchased $11.20 million of the bonds on the open market at their market price of $11.70 million
You're repurchasing $11.20m out of $44.80m here, so remember to use only 25% of the amounts given to you in the question.
Dr Bonds payable $11.20m
Dr Premium on bonds payable $1.8m
Cr Cash $11.7m
Cr Gain on redemption of bonds $1.3m
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