Presented below are three independent situations: (a) Howell Corporation purchas

Question

Presented below are three independent situations: (a) Howell Corporation purchased $350,000 of its bonds on June 30, 2010, at 103 and immediately retired them. The carrying value of the bonds on the retirement date was $339,500. The bonds pay semiannual interest and the interest payment due on June 30, 2010, has been made and recorded. (b) Justice, Inc. purchased $400,000 of its bonds at 96 on June 30, 2010, and immediately retired them. The carrying value of the bonds on the retirement date was $393,000. The bonds pay semiannual interest and the interest payment due on June 30, 2010, has been made and recorded. (c) Riser Company has $80,000, 10%, 12-year convertible bonds outstanding. These bonds were sold at face value and pay semiannual interest on June 30 and December 31 of each year. The bonds are convertible into 40 shares of Riser $5 par value common stock for each $1,000 par value bond. On December 31, 2010, after the bond interest has been paid, $20,000 par value of bonds were converted. The market value of Riser

Explanation / Answer

(a) June 30 (b) June 30 (c) Dec. 31 ======================================================================================== Bonds Payable............................................................... Loss on Bond Redemption............................................. Discount on Bonds Payable................................ Cash..................................................................... ================================================================================= ($350,000- $339,500 = $10,500) ($350,000x 102% = $357,000) 350,000 ===================================================================================== $357,000- 350,000 =17,500 ========================================================================================= Bonds Payable............................................................... Discount on Bonds Payable................................ Gain on Bond Redemption.................................. Cash..................................................................... ($400,000 $393,000 = $7,000) ($400,000 97% = $388,000) 400,000 ================================================================================================= Bonds Payable .............................................................. Common Stock ................................................... Paid-in Capital in Excess of Par ......................... ($5 40 20 = $4,000) 20,000 10,500 357,000 7,000 5,000 388,000 4,000 16,000 ==================================================================================

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