Question

E14-15.  

(Entries for Redemption and Issuance of Bonds)

(LO 1, 2) Jason Day Company had bonds outstanding with a maturity value of $300,000. On April 30, 2017, when these bonds had an unamortized discount of $10,000, they were called in at 104. To pay for these bonds, Day had issued other bonds a month earlier bearing a lower interest rate. The newly issued bonds had a life of 10 years. The new bonds were issued at 103 (face value $300,000).

Instructions

Ignoring interest, compute the gain or loss and record this refunding transaction.

(AICPA adapted)

Answer 1

Solution:

Given

Face value = $300000

Unamortized discount = $10000

Part 1- Calculation of gain or loss on redumption of bonds payable

Particulars		Amount ($)
Reacquisition price ( $300000*104)		$312000
Less: Net carrying amount of bonds redeemed
Per value	$300000
Unamortized discount	$10000	$290000
Loss on redemption		$22000

  

Part 2- Journal entry worksheet:

Accounts title and explaination	Debit ($)	Credit ($)
Bonds payable	$300000
Loss on redemption	$ 22000
Discount on bonds payable		$10000
Cash		$312000
(To record redemption of bonds payable)
Cash ($300000*103)	$309000
Premium on bonds payable		$9000
Bonds payable		$300000
(To record issuance of new bonds)