Question

On January 2, 2015, Larkspur Corporation issued $1,400,000 of 10% bonds at 96 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 101 (i.e., at 101% of face amount), and on January 2, 2020, Larkspur called $840,000 face amount of the bonds and redeemed them.

Ignoring income taxes, compute the amount of loss, if any, to be recognized by Larkspur as a result of retiring the $840,000 of bonds in 2020. (Round answer to 0 decimal places, e.g. 38,548.)

Loss on redemption

$enter a dollar amount of loss on redemption rounded to 0 decimal places

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.)

Date	Account Titles and Explanation	Debit	Credit
January 2, 2020	enter an account title to record the transaction on January 2, 2017	enter a debit amount	enter a credit amount
	enter an account title to record the transaction on January 2, 2017	enter a debit amount	enter a credit amount
	enter an account title to record the transaction on January 2, 2017	enter a debit amount	enter a credit amount
	enter an account title to record the transaction on January 2, 2017	enter a debit amount	enter a credit amount

Answer 1

Issue price = 1400000*.96 = 1344000

Discount on bonds payable = 1400000-1344000 = 56000

Unamortized discount = 56000/2 = 28000

Carrying value = 1344000+28000 = 1372000

a) Carrying value of 840000 bonds = 1372000/1400000*840000 = 823200

Redemption value = 840000*1.01 = 848400

Loss on redemption = 823200-848400 = -25200

b) Journal entry

Date	Account Titles and Explanation	Debit	Credit
January 2, 2020	Bonds payable	840000
	Loss on bond redemption	25200
	Discount on bonds payable		16800
	Cash		848400