Exercises: Chapter 14 pat 2 eBook Show Me How Calculator Redemption of Bonds Pri

Question

Exercises: Chapter 14 pat 2 eBook Show Me How Calculator Redemption of Bonds Prior to Maturity Instructions Chart of Accounts General Journal Instructions Hill Corporation issued $1,500,000 of 11% bonds at 98 on January 2, 2014. Interest is paid semiannually on June 30 and December 31. The bonds had a 10-year life from the date of issue, and the company uses the straight-line method of amortization. On March 31, 2017, Hill recalls the bonds at the call price of 107 plus accrued interest. Required: Prepare the journal entries to record the reacquisition (recall) of Hill's bonds.

Explanation / Answer

Discount on bond issue = 1,500,000(1-.98)= $ 30000

Number of semiannual months =10*2=20 [2semiannual months in a year]

Discount amortisation per semiannual month = 30000/20 = 1500

Number of semiannual months expired =3 years or 3*2 =6 semiannual months

Discount amortised = 6*1500 =9000 [till 31 dec 2016]

Discount amortisation for [1jan-31 march=1500*3/6 = 750

Unamortised discount = 30000-9000-750= 20250

Amount paid at redemption : 1,500,000*107/100 = 1605000

Accrued interest for 3 months [1jan -31 march ]=1500000*.11*3/12 = 41250

Date Account debit credit march 31 Bond payable 1,500,000 Interest expense [41,250+750] 42,000 loss on Bond redemption [balance] 124,500 Discount on bond payable 20,250 cash [1,605,000+41,250] 1,646,250

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