Question

1. On January 2, 2020, Drambuie Corp. issued $1,000,000 of 6% bonds at $865,795 due December...

1. On January 2, 2020, Drambuie Corp. issued $1,000,000 of 6% bonds at $865,795 due December 31, 2029. The market rate of interest was 8% and interest on the bonds are payable annually each December 31. The discount on the bonds is being amortized on an effective interest basis. The bonds are callable at 101 and on January 1, 2022, Drambuie called the bonds and retired them.

A. Compute the gain or loss on the early retirement of the bonds on January 1, 2022. (Round all value to whole dollars.)

B. Show the journal entry to record the retirement of the bonds on January 1, 2022.

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Answer #1
Date Cash interest Discount Carrying
interest expense amortized value
1/2/2020 865,795
12/31/2020 60000 69264 9264 875,059
12/31/2021 60000 70005 10005 885,063
a) Loss or gain on redemption
carrying value of bonds 885,063
cash paid on redemption 1010000
loss on redemption 124,937 answwer
b) Journal Entry
Date Account titles & Explanations Debit Credit
1/1/2022 Bonds payable 1,000,000
Loss on redemption 124,937
Discount on bonds 114,937
cash 1,010,000
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