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In: Accounting

On January 2, 2016, Prebish corporation issued $1,500,000 of 10% bonds to yield 11% due December...

On January 2, 2016, Prebish corporation issued $1,500,000 of 10% bonds to yield 11% due December 31, 2025. Interest on the bonds is payable annually each December 31. The bonds are callable at 101 ( at 101% of face amount), and on January 2, 2019, Prebish called $1,000,000 face amount of the bonds and retired them

A. Determine the price of the Prebish bonds when issued on Janurary 2, 2016?

B. Prepare an amortization schedule for 2016-2020 for the bonds?

C. Ingoring income tax, compute the amount of loss, if any, to be recongized by Prebish as an result of retiring the $1,000,000 of bonds on Janurary 2, 2019, and prepare the journal entry to record the retirement?

Solutions

Expert Solution

Par value of bonds 1500000
Cash interest annual 150000
Annuity for 10 yrs at 11% 5.88923
PVF at 11% fr 10th year 0.352184
Present value of bonds 528276
Present value of interest 883384.5
Issue price 1411661
Amort chart:
Date Cash int. Int. expens Disccount Unamortized Book value
Amortized discount of bonds
02.01.16 88339 1411661
31.12.16 150000 155283 5283 83056 1416944
31.12.17 150000 155864 5864 77192 1422808
31.12.18 150000 156509 6509 70683 1429317
31.12.19 150000 157225 7225 63458 1436542
31.12.20 150000 158020 8020 55438 1444562
Journal entry
02.01.19 Bonds payable Dr. 1,000,000
Loss on redemption Dr. 57122
    Cash account 1010000
    Discount on bonds payayble 47122
Note:
Book value on 31.12.18 of $1000,000 bonds
Par value of Bonds 1,000,000
Less: Unamortized discount 47122
(70683*10/15)
Book value of Bonds 952,878
Redemption value 1010000
(10000*101)
Loss on redemption 57,122

ekkarill92 answered 1 year ago
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