Discount Amortization Schedule and Retirement Before maturity Foster Incorporate

Question

Discount Amortization Schedule and Retirement Before maturity Foster Incorporated sold $500,000 of 12% bonds on January 1, 2016, for S470.143 47, a pnce that yields a 14% interest rate. The bonds pay interest semiannually on June 30 and December 31 and are due December 31, 2019. Foster uses the effective interest methood. Required: 1. Prepare an interest expense and discount amortization schedule. 2. Assume the company reacquired the bonds on July 1, 2018, at 104. Prepare journal entries to record the bond retirement

Explanation / Answer

1.

Carrying value of bonds on July 1,2018= 486878,

Re acquisition price= 500000*108%= 540000

Loss on extinguishment of debt= 540000-486878= 53122

Entry:

Year Opening bond value Interest accrued Interest paid Closing bond value Discount amortised A B=A*14%*6/12 C=500000*12%*6/12 D=A+B-C E= B-C 2016           470,144             32,910               30,000           473,054                 2,910 2016           473,054             33,114               30,000           476,167                 3,114 2017           476,167             33,332               30,000           479,499                 3,332 2017           479,499             33,565               30,000           483,064                 3,565 2018           483,064             33,814               30,000           486,878                 3,814 2018           486,878             34,081               30,000           490,960                 4,081 2019           490,960             34,367               30,000           495,327                 4,367 2019           495,327             34,673               30,000           500,000                 4,673 Total           269,856            240,000               29,856

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