On January 1, 2012, Hess Corporation issued $200,000 of 9% 10 year bonds at 103, with...

On January 1, 2012, Hess Corporation issued $200,000 of 9% 10 year bonds at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On June 30, 2015, Hess retired $100,000 of these bonds at 98 plus accrued interest. What gain or loss should Hess record as a gain or loss on retirement of these bonds? Prepare the journal entry.

Expert Solution

Bond Issued (200000*103%)	206000
Less: Face value of bond payable	200000
Premium On bond payable	6000
Divided by : No of Period (10 years * 2 times in year) (interest paid on semiannually)	20
Amortization of bond premium under Straight line method	300

Interest paid per semiannually (200000*9%)	18000

Book value of bond On Jun 30, 2015 (check below table)	203900
Less: Bond paid (200000*98%)	196000
Gain on retirement of Bond	7900

Straight line method
Interest payment (Credit Cash) = Face value of bond * Coupon rate
Interest Expense (Debit Interest Expense) = Interest payment - Amortization of bond premium
Amortization of bond premium (Debit Bond Premium) = 300
Credit Balance in Bond premium = Credit Balance in Bond premium for previous period - Amortization of bond premium
Credit Balance in Bond Payable = Face value of bond
Book value of Bond = Credit Balance in Bond premium + Credit Balance in Bond Payable

Bond Premium Amortization Table
*Credit Balance in Bond premium at end of retirement of bond payable must be Zero.*
Period	Date	Interest payment	Interest Expense	Amortization of bond premium	Credit Balance in Bond premium	Credit Balance in Bond Payable	Book value of Bond
0	Jan 1, 2012				6000	200000	206000
1	Jun 30, 2012	18000	17700	300	5700	200000	205700
2	Dec 31, 2012	18000	17700	300	5400	200000	205400
3	Jun 30, 2013	18000	17700	300	5100	200000	205100
4	Dec 31, 2013	18000	17700	300	4800	200000	204800
5	Jun 30, 2014	18000	17700	300	4500	200000	204500
6	Dec 31, 2014	18000	17700	300	4200	200000	204200
7	Jun 30, 2015	18000	17700	300	3900	200000	203900
8	Dec 31, 2015	18000	17700	300	3600	200000	203600
9	Jun 30, 2016	18000	17700	300	3300	200000	203300
10	Dec 31, 2016	18000	17700	300	3000	200000	203000
11	Jun 30, 2017	18000	17700	300	2700	200000	202700
12	Dec 31, 2017	18000	17700	300	2400	200000	202400
13	Jun 30, 2018	18000	17700	300	2100	200000	202100
14	Dec 31, 2018	18000	17700	300	1800	200000	201800
15	Jun 30, 2019	18000	17700	300	1500	200000	201500
16	Dec 31, 2019	18000	17700	300	1200	200000	201200
17	Jun 30, 2020	18000	17700	300	900	200000	200900
18	Dec 31, 2020	18000	17700	300	600	200000	200600
19	Jun 30, 2021	18000	17700	300	300	200000	200300
20	Dec 31, 2021	18000	17700	300	0	200000	200000

Journal entries
Date	General journal	Debit	Credit
If you want to separate entry for accrued interest and retirement of bond
Jun 30, 2015	Interest expense	17700
	Premium on bond payable	300
	Cash		18000
	(To record accrued interest paid)

Jun 30, 2015	Bond payable	200000
	Premium on bond payable	3900
	Gain on retirement of Bond		7900
	Cash		196000
	(To retirement of bond.)

If you want to combined entry for accrued interest and retirement of bond
Jun 30, 2015	Interest expense	17700
	Bond payable	200000
	Premium on bond payable (3900+300)	4200
	Gain on retirement of Bond		7900
	Cash (196000+18000)		214000
	(To record early retirement of bond payable and accrued interest.)

ekkarill92 answered 2 years ago

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