Exercise 10-9 Straight-Line: Bond computations, amortization, and bond retiremen
ID: 2529067 • Letter: E
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 7
7. Prepare the journal entry to record the bond retirement at January 1, 2023.
Explanation / Answer
Issue price of bonds = $390,000 * 97% = $378,300
Discount on issue of bonds = $390,000 - $378,300 = $11,700
Annual amortisation of discount = $11,700/20 years = $585
Discount amortised upto December 31, 2022 = $585 * 6 years = $3,510
Book value of bonds as on January 1, 2023 = Issue price + Discount already amortised = $378,300 + $3,510 = $381,810
Book value of bonds retired = $381,810 * 20% = $76,362
Cash paid for retirement of bonds = $390,000 * 20% * 104.50% = $81,510
Loss on retirement of bonds = Cash paid for retirement - Book value = $81,510 - $76,362 = $5,148
Discount unamortised = ($11,700 - $3,510) * 20% = $1,638
Journal entry shall be as below:
Date
General Journal
Debit
Credit
Jan 01, 2023
Bonds payable
78,000
Loss on retirement of bonds payable
5,148
Discount on bonds payable
1,638
Cash
81,510
Date
General Journal
Debit
Credit
Jan 01, 2023
Bonds payable
78,000
Loss on retirement of bonds payable
5,148
Discount on bonds payable
1,638
Cash
81,510
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