Question

On January 2, 2015, Sarasota Corporation issued $1,150,000 of 10% bonds at 99 due December 31, 2024. 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 102 (i.e., at 102% of face amount), and on January 2, 2020, Sarasota called $690,000 face amount of the bonds and redeemed them.

Ignoring income taxes, compute the amount of loss, if any, to be recognized by Sarasota as a result of retiring the $690,000 of bonds in 2020. (Round answer to 0 decimal places, e.g. 38,548.)

a) Loss on redemption

b) Prepare the journal entry to record the redemption. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

a
Issue price of bonds	1138500	=1150000*0.99
Discount on issue	11500	=1150000-1138500
Unamortized discount on January 2, 2020	5750	=11500*5/10
Unamortized discount on $690,000 bonds	3450	=5750*690000/1150000
Carrying value of $690,000 bonds	686550	=690000-3450
Redemption price	703800	=690000*1.02
Less: Carrying value	686550
Loss on redemption	17250
b
Account Titles and Explanation	Debit	Credit
Bonds payable	690000
Loss on redemption of bonds	17250
Discount on Bonds payable		3450
Cash		703800