Question

January 1, 2020, Farhaan Corp. issued bonds with a par value of $ 1,000,000 at 98 (which is net of issue costs), due in 15 years. Six years after the issue date, the entire issue is called at 102 and cancelled.

Instructions

Prepare the journal entry to reflect the reacquisition of the bond assuming the straight-line amortization method.

Answer 1

Particulars	Amount
Par value	$       1,000,000
× discount	2%
Discount on bonds payable	$            20,000
Divided by life of bonds	15.00
Amortization per year	$         1,333.33
× unexpired life of bonds	9.00
Balance in discount on bonds	$            12,000
Particulars	Amount
Face value	$       1,000,000
Less: discount on bonds payable	$            12,000
Carrying amount	$          988,000
Particulars	Amount
Reacquisition value	$       1,020,000
Less: carrying value	$          988,000
Loss on reacquisition	$            32,000

Entry:

Account	Debit	Credit
Bonds payable	$       1,000,000
Loss on redemption of bonds	$            32,000
Discount on bonds payable		$      12,000
Cash		$ 1,020,000
(Entry to record redemption of bonds)

Please rate the answer.