Question

Whispering Company had bonds outstanding with a maturity value of $279,000. On April 30, 2020, when these bonds had an unamortized discount of $10,000, they were called in at 106. To pay for these bonds, Whispering had issued other bonds a month earlier bearing a lower interest rate. The newly issued bonds had a life of 10 years. The new bonds were issued at 102 (face value $279,000).

Ignoring interest, compute the gain or loss.

Loss on redemption

$

Ignoring interest, record this refunding transaction. (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
(To record redemption of bonds payable)
(To record issuance of new bonds)

Answer 1

a) Loss on redemption = Redemption value-Carrying value = (279000*1.06)-(279000-10000) = 26740

Journal entry

Account titles and explanation	Debit	Credit
Bonds payable	279000
Loss on bond redemption	26740
Discount on bonds payable		10000
Cash (279000*1.06)		295740
(To record redemption of bonds payable)
Cash (279000*1.02)	284580
Bonds payable		279000
Premium on bonds payable		5580
(To record issuance of new bonds)