On March 31, 2014, Hanson Corporation sold $9,000,000 of its 8%, 10-year bonds f

Question

On March 31, 2014, Hanson Corporation sold $9,000,000 of its 8%, 10-year bonds for $6,730,500 including accrued interest. The bonds were dated January 1, 2014. Interest is paid semiannually on January 1 and July 1. On April 1, 2018, Hanson purchased 1/2 of the bonds on the open market at 99 plus accrued interest and canceled them. Hanson uses the straight-line method for amortization of bond premiums and discounts.
What was the amount of the gain or loss on retirement of the bonds?
Prepare the journal entry needed at April 1, 2018 to record retirement of the bonds. Assume that interest and premium or discount amortization have been recorded through January 1, 2018. Record interest and amortization on only the bonds retired.
Prepare the journal entry needed at July 1, 2018 to record interest and premium or discount amortization.

Explanation / Answer

1 10% 10 YEAR BOND OF 9,000,000 No of N=Bonds 90000 One Bond 100 Semi Annual Interest Rate 4% n period 20 Paying interest 4 each six month Sale Price                                     74.78 Value of a bond=4*(PVIF,4%,24)+100*(PVIF,4%,24) Total Value of bonds Issue Price                                     74.78 no of Bonds                            90,000.00 Interest for three months                         1,80,000.00 Total sales Value-accrued intrest                            65,50,500 Discount on Face value of the Bonds =9000000-6550500=2449500 Amortisation at each period of six month=2449500/20=122,475 2 Amortisation Table Issue Price Amortisation Carrying Value Interest Total Interest Expense 0 31/03/2014          65,50,500 1 30/09/2014                         1,22,475.00          66,72,975              3,60,000.00 4,82,475.00 2 31/03/2015                         1,22,475.00          67,95,450              3,60,000.00 4,82,475.00 3 30/09/2015                         1,22,475.00          69,17,925              3,60,000.00 4,82,475.00 4 31/03/2016                         1,22,475.00          70,40,400              3,60,000.00 4,82,475.00 5 30/09/2016                         1,22,475.00          71,62,875              3,60,000.00 4,82,475.00 6 31/03/2017                         1,22,475.00          72,85,350              3,60,000.00 4,82,475.00 7 30/09/2017                         1,22,475.00          74,07,825              3,60,000.00 4,82,475.00 8 31/03/2018                         1,22,475.00          75,30,300              3,60,000.00 4,82,475.00 3 Gain or loss on the retirement of the bond Purchase price Value of the bond purchased 45000*99          44,55,000 Face value of the bond 450000*10          45,00,000 Gain on retirement of bonds                45,000 Calculation of Bond account to be credited Face Value of the Bond 450000*10          45,00,000 Less: Carrying Value of the bond =7530300*45000/90000          37,65,150            7,34,850 Purchase &Retirement of the bond Date Account Title Debit Credit 1-Apr-18 prepaid Interest (45000*100*8%*3/12)                                  90,000 Gain on retirement of Bond                45,000 8% Bond (face value of bond)                            45,00,000 Cash          45,45,000 Date Account Title Debit Credit 1-Jul-18 Interest                               7,34,850 8% Bond            6,44,850 Prepaid interest                90,000

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