Question

Three years ago American Insulation Corporation issued 10 percent, $870,000, 10-year bonds for $805,000. Debt issue costs were $8,000. American Insulation exercised its call privilege and retired the bonds for $860,000. The corporation uses the straight-line method both to determine interest and to amortize debt issue costs. Required: Prepare the journal entry to record the call of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Three years ago American Insulation Corporation issued 10 percent, $870,000, 10-year bonds for $870,000

So Discount on Issue of Bond = 870,000 - 805,000 = $65000

to be Amortized over 10 Years

therefore unamortized balance = 65000 * 7/10 = $ 45500

2. issued bond at Debt Issue cost of $ 8,000

To be amortized over 10 Years

So Unamortized balance = 8000 * 7/10 = $ 5600

3. Journal Entry For early Retirment of Callable Bonds

Bond Paybale Account Debit   $ 870,000

Cash Account Credit $ 860,000
Debt Issue Cost Credit $ 5,600
Discount on Issue of Bond Credit $ 45,500