Question

Crane Capital Ltd. issued 650 $1,000 bonds at 104. After issuance, similar bonds were sold at 98. Assume that Crane Capital Ltd. follows ASPE and valued the debt component of the instruments first, applying the residual to the equity component. On a date when the bonds had a carrying value of $640,600 and fair value of $644,650, Crane paid $690,000 in cash to the bondholders to retire the bonds early.

QUESTION:

Record the retirement using the book value method.

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

Answer 1

Answer
Account title	Debit	credit
Bond Payable	$640,600
Contributed Surplus-Conversion Rights	$ 39,000
Loss of Redemption of Bond	$    4,050
Retained Earning (Balancing figure)	$    6,350
Cash		$690,000
Working:
i)contributed surplus:
Total proceeds at time of issuance [650*1000*104/100]	676000
less:Market price of bonds immediately after issuance [650*1000*98/100]	-637000
Contributed surplus	39000
ii)
Loss on redemption of bonds = Fair value at retirement -carrying value
= 644650 - 640600
= 4050