Question

# Three years ago American Insulation Corporation issued 10 percent, \$1,000,000, 12-year bonds for \$870,000. Debt issue...

 Three years ago American Insulation Corporation issued 10 percent, \$1,000,000, 12-year bonds for \$870,000. Debt issue costs were \$5,000. American Insulation exercised its call privilege and retired the bonds for \$940,000. The corporation uses the straight-line method both to determine interest and to amortize debt issue costs. Prepare the journal entry to record the call of the bonds.

discount amount amortized till now = (1,000,000-870,000) /12 * 3 years

=>\$32,500.

remaining discount = 130,000 -32,500 =>97,500

debt issue costs amotised till now = (5000)/12 * 3 years

=>\$1,250.

remaining debt issue cost = 5000-1250 =>3750

the following is the journal entry:

 bonds payable 1,000,000 Loss on early call 41,250 ............To discount on bonds payable 97,500 .............To debt issue costs 3,750 ............To cash a/c 940,000 (loss amount = 940,000+3750+97500-1,000,0000)=>41,250)

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