On January 1, 2009, Seldon issues $450,000 of 10%, 15-year bonds at a price of 9

Question

On January 1, 2009, Seldon issues $450,000 of 10%, 15-year bonds at a price of 93¼. Six years later, on January 1, 2015, Seldon retires 20% of these bonds by buying them on the open market at 109¾. All interest is accounted for and paid through December 31, 2014, the day before the purchase. The straight-line method is used to amortize any bond discount.

I need to figure out how much the company receives on Jan 1 2009 when they issue the bonds. I would guess that they receive 459325, but that is wrong. So I am not sure how to calculate this..

I also need to find what the discount on the bond is. I'd really like someone to explain to me how this is done..

And I've also copied and pasted what the rest of the questions to this problem are:

Requirement 3:
How much amortization of the discount is recorded on the bonds for the entire period from January 1, 2009, through December 31, 2014? (Omit the "$" sign in your response.)

Total amortization for first 6 years $


Requirement 4:
What is the carrying (book) value of the bonds as of the close of business on December 31, 2014? What is the carrying value of the 20% soon-to-be-retired bonds on this same date? (Omit the "$" sign in your response.)

Entire Group Retired 20%
Carrying value $ $

Requirement 5:
How much did the company pay on January 1, 2015, to purchase the bonds that it retired?

Requirement 6:
What is the amount of the recorded gain or loss from retiring the bonds?

If someone could pleaseee help me how to figure this stuff out I'd greatly appreciate it!

Explanation / Answer

It is evident that Bond price is $100 per bond. So the bonds are issued at a discount of (100-93.25) = $6.75 per bond. Total Bond size is $450,000 No of bonds issued = $450,000/$100 = 4500 Total Disc on Bonds = 4500*$6.75 = $30,375 Amount raised by Bonds = 4500*$93.25 = $419,625 Disc of $30375 is to be amortized over 15 Yrs. So annual amount amortized = 30375/15 = $2025 Journal entry will look like this Jan. 1, 2009 Cash Dr 419,625 Discount on Bonds Payable Dr 30,375 Bonds Payable cr 450,000 Reqt 3: Amortization for 6 yrs = 6*2025 = $12,150 The bond discount of $30,375 results from the corporation receiving only $419,625 from investors, but having to pay the investors $450,000 on the date that the bond matures. The discount of $30,375 is treated as an additional interest expense over the life of the bonds. When the same amount of bond discount is recorded each year, it is referred to as straight-line amortization. In this example, the straight-line amortization would be $2025 ($30375 divided by the 15-year life of the bond). Annual Int on Bond = 10%*450,000 = $45,000 Dec 31, 2009 Interest Expense Dr 47,025 Discount on Bonds Payable Cr 2025 Interest Payable Cr 45,000 Reqt 4: As the bond discount is amortized, the bond’s book value will be increasing from $419,625 on the date the bond was issued to the bond’s maturity amount of $450,000. Carrying (book) value of the bonds as of the close of business on December 31, 2014 will be Initial Bond value + amortization over 6 yrs = $419,625 + 6*2025 = $431,775 The carrying value of the 20% soon-to-be-retired bonds on this same date will be 20%*$431,775 = $86,355 Reqt5 : How much did the company pay on January 1, 2015, to purchase the bonds that it retired? Total bonds issued are 4500. So 20% of 4500 = 900 bonds So company will pay $109.75*900 = $98,775 to purchase the bonds Reqt 6: What is the amount of the recorded gain or loss from retiring the bonds? SO Book value of bonds is $86,355 & purchase price is $98,775 So Company will book a Loss of (86355-98775) = ($12420) on Purchase of bonds

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