Question

On January 2, 2014, Bengro Corporation issued $4,500,000 of 10% bonds at 96 due December 31,...

On January 2, 2014, Bengro Corporation issued $4,500,000 of 10% bonds at 96 due December 31, 2023. 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 “effective interest method.”) The bonds are callable at 102 (i.e., at 102% of face amount), and on January 2, 2020, Bengro called all of the bonds and redeemed them.

Prepare Bengro’s journal entry to record the early extinguishment of the bonds payable.

Homework Answers

Answer #1
Account Titles and Explanation Debit Credit
Bonds payable 4500000
Loss on redemption of bonds 162000
      Discount on Bonds payable 72000
      Cash 4590000
Workings:
Discount on issue 180000 =4500000*(1-0.96)
Discount amortized for 6 years 108000 =180000*6/10
Discount unamortized 72000 =180000-108000
Amount paid for redemption 4590000 =4500000*1.02
Less: Carrying value of bonds redeemed 4428000 =4500000-72000
Loss on redemption 162000
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