Question

On January 1, 2016, Shay issues $360,000 of 11%, 20-year bonds at a price of 97.50. Six years later, on January 1, 2022, Shay retires 25% of these bonds by buying them on the open market at 104.75. All interest is accounted for and paid through December 31, 2021, the day before the purchase. The straight-line method is used to amortize any bond discount.

How much amortization of the discount is recorded on the bonds for the entire period from January 1, 2016, through December 31, 2021?

. What is the carrying (book) value of the bonds and the carrying value of the 25% soon-to-be-retired bonds as of the close of business on December 31, 2021?

	Entire Group	Retired 25%
Par value
Remaining discount
Carrying value	$

How much did the company pay on January 1, 2022, to purchase the bonds that it retired?

What is the amount of the recorded gain or loss from retiring the bonds?     

Answer 1

Par value of bonds			360000
Issue price (360000*97.50%0			351000
Total Discount			9000
Divide: Life			20
Annual amortization of discount			450
Discount amortized in 6yrs			2700
Unammortized discount			6300
Unamortized discount for 25% bonds			1575
		Entire	Retired 25%
Par value		360000	90000
Remaining discount		6300	1575
Carrying Value		353700	88425
Amount to be paid for retirement:
Par value of bonds retired (360000*25%)				90000
Amount to be paid for retirement:				94275
		(90000*104.75%)
Loss on retirement:
Amount paid				94275
Less: Book value of bonds retired				88425
Loss on retirement:				5850