Exercise 10-9 Straight-Line: Bond computations, amortization, and bond retiremen

Question

Exercise 10-9 Straight-Line: Bond computations, amortization, and bond retirement LO P2, P4

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On January 1, 2017, Shay issues $390,000 of 8%, 20-year bonds at a price of 97.00. Six years later, on January 1, 2023, Shay retires 20% of these bonds by buying them on the open market at 104.50. All interest is accounted for and paid through December 31, 2022, the day before the purchase. The straight-line method is used to amortize any bond discount.

Exercise 10-9 Part 6

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

Explanation / Answer

Cash proceeds from sale of bonds at issuance $378,300 Amount of discount $11,700 Amortization of discount $4,680 Entire value Retired 20% Par Value $390,000 $78,000 Remaining Discount $7,020 $1,404 Carrying Value $382,980 $76,596 Purchase price $82,680 Loss on retirement = Purchase price - carrying value = $82,680 - $76,596 = $6,084

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