On December 1, 2011, Cone Company issued its 10%, $470,000 face value bonds for
ID: 2538473 • Letter: O
Question
On December 1, 2011, Cone Company issued its 10%, $470,000 face value bonds for $550,000, plus accrued interest. Interest is payable on November 1 and May 1. On December 31, 2013, the book value of the bonds, inclusive of the unamortized premium, was $500,000 . On July 1, 2014, Cone reacquired the bonds at 97 plus accrued interest. Cone appropriately uses the straight-line method for the amortization because the results do not materially differ from those of the effective interest method.
Prepare a schedule to compute the gain or loss on this redemption of debt. Enter all values as positive values.
Book value of bonds on December 1, 2011
$ ??
Book value of bonds on December 31, 2013
??
Amortization for 25 months
$ ??
Monthly amortization
$ ??
Book value of bonds on December 31, 2013
$ ??
Amortization for 2014 to July 1, 2014
??
Book value of bonds on July 1, 2014
$??
Cost of reacquisition
??
Gain on extinguishment of debt
$??
Book value of bonds on December 1, 2011
$ ??
Book value of bonds on December 31, 2013
??
Amortization for 25 months
$ ??
Monthly amortization
$ ??
Book value of bonds on December 31, 2013
$ ??
Amortization for 2014 to July 1, 2014
??
Book value of bonds on July 1, 2014
$??
Cost of reacquisition
??
Gain on extinguishment of debt
$??
Explanation / Answer
Book Value of Bonds on December 1, 2011 $550,000
Book Value of Bonds on December 31, 2013 ($500,000)
Amortization for 25 months $50,000
Monthly Amortization ($50,000 / 25) $2,000
Book Value of Bonds on December 31, 2013 $500,000
Amortization for 2014 to July 1, 2014 ($2,000 x 6 Months) $12,000
Book Value of Bonds on July 1, 2014 $488,000
Cost of reacquisition ($470,000 x 0.97) ($455,900)
Gain on extinguishment of debt $32,100
Entry:
Bonds Payable $470,000
Premium $18,000
Cash $455,900
Gain $32,100
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