On January 2, 2012, Buffalo Corporation issued $1,400,000 of 10% bonds at 96 due

Question

On January 2, 2012, Buffalo Corporation issued $1,400,000 of 10% bonds at 96 due December 31, 2021. Interest on the bonds is payable annually each December 31. The discount on the bonds is also being amortized on a straight-line basis over the 10 years. (Straight-line is not materially different in effect from the preferable "interest method".) The bonds are callable at 101 (i.e., at 101% of face amount), and on January 2, 2017, Buffalo called $840,000 face amount of the bonds and redeemed them. Ignoring income taxes, compute the amount of loss, if any, to be recognized by Buffalo as a result of retiring the $840,000 of bonds in 2017. (Round answer to 0 decimal places, e.g. 38,548) Loss on redemption Prepare the journal entry to record the redemption. (Round answers to O decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit January 2, 2017

Explanation / Answer

Journal entry of the redemption would be :

Debit Bonds Payable A/c $ 840000

Debit Loss on redemption A/c $ 25200

Credit Cash A/c $ 848400

Credit Discount A/c $ 16800

Loss on redemotion would be $ 25200

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