At December 31, Year 16, the 12% bonds payable of Bob the Bond had a carrying...

At December 31, Year 16, the 12% bonds payable of Bob the Bond had a carrying value of $312,000. The bonds, which had a face value of $300,000, were issued at a premium to yield 10% 10 years ago. Bob uses the effective interest method of amortization of bond premium. Interest is paid on June 30 and December 31. On June 30, Year 17, Bob paid interest for June 30 and at the same time, Bob retired the bonds at 104.

Determine the loss on redemption of bonds at June 30, Year 17. [11 marks]

Solutions

Expert Solution

Carrying Value of bond After 10 Years = $ 312000

DIscount rate = 10%

Cupon Rate = 12%

Semi Annual interest = 300000 * 12 % * ( 6/12 )

= $ 18000

Interest Expense = Carrying Value * Discount rate * ( 6/12)

= 312000 * 10 % * (6/12)

= $ 15600

Premium Amprtization For june 30 year 17

= 18000 - 15600

= $ 2400

unamportized premium = 12000 - 2400

= $ 9600

Carrying Value of bond = 312000 - 2400

= $ 309600

Cash paid on redemption = ( 300000 / 100 0 * 104 = $ 312000

loss on redemption = Cash paid - Carrying Value of bonds

= 312000 - 309600

= $ 2400

Date	Accounts Name	Debit	Credit
	Bond Redemption Journal entry
30-Jun Year 17	Bonds Payable	300000
	Unamortized premium	9600
	loss on redemption of Debentures	2400
	Cash ( ( 300000 / 100 ) * 104 )		312000

ekkarill92 answered 1 year ago

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