Q) On January 2, 2012, Banno Corporation issued $1,500,000 of 10% bonds at 97 du

Question

Q)  On January 2, 2012, Banno Corporation issued $1,500,000 of 10% bonds at 97 due December 31, 2021. 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, 2017, Banno called $900,000 face amount of the bonds and redeemed them.

Ignoring income taxes, compute the amount of loss, if any, to be recognized by Banno as a result of retiring the $900,000 of bonds in 2017. (Round answer to 0 decimal places, e.g. 38,548.)

Loss on redemption 16e

Explanation / Answer

$900,000 x 3% = $27,000 ÷ 10 years = $2,700 x 5 years remaining = $13,500

Journal Entry to Record the Redemption

Calculation of Loss On Redemption Amount Reacquisition price (900,000*101%) $    909,000.00 Par Value $ 900,000.00 Less: Unamortized discount $ (13,500.00) $    886,500.00

$900,000 x 3% = $27,000 ÷ 10 years = $2,700 x 5 years remaining = $13,500

Loss On Redemption $      22,500.00

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