Kershaw Electric sold $4,600,000, 10%, 10-year bonds on January 1, 2017. The bon
ID: 2545299 • Letter: K
Question
Kershaw Electric sold $4,600,000, 10%, 10-year bonds on January 1, 2017. The bonds were dated January 1, 2017, and paid interest on January 1. The bonds were sold at 95.
At December 31, 2017, $8,100 of the Discount on Bonds Payable account has been amortized. Show the balance sheet presentation of the long-term liability at December 31, 2017.
On January 1, 2019, when the carrying value of the bonds was $4,386,200, the company redeemed the bonds at 103. Record the redemption of the bonds assuming that interest for the period has already been paid
Explanation / Answer
Req 1: Par value of bonds: $ 4600,000 Issue price: $95 Total Cash received on bonds (46000*95): $ 4370,000 Total Discount on bonds payable: $4600,000 -4370,000 = $ 230,000 Discount amortized on DEC 31 , 2017: $ 8100 Balance in Discounts on Bonds payable: 230,000 -8100 = $ 221,900 BALANCE SHEET PRESENTATION: Long term Lliabilities: Bonds payable 4,600,000 Less: Discount on bonds payable 221,900 Net amount of Bonds payable 4,378,100 Req 2: Cash paid on redemption (46000*103): $ 4738,000 Balance in Discount on Bonds payable: Par value of Bondns-carrying value of bonds 4600,000 -4386200 = $ 213,800 JOURNAL ENTRY FOR REDEMPTION ON JAN1,2019: 1-Jan-19 Bonds Payable Dr. 4,600,000 Loss on Redemption of Bonds 351,800 Discount on Bonds payable 213800 Cash 4738000
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