On January 1, 2020, Linen Corp. issued $ 540,000 (face value), 10% annual interest, ten-year bonds...

On January 1, 2020, Linen Corp. issued $ 540,000 (face value), 10% annual interest, ten-year bonds at 97. The bonds are callable at 103. Linen has recorded amortization of the bond premium by the straight-line method. On December 31, 2025, Linen repurchased $ 200,000 of the bonds in the open market at 103. Bond interest expense and premium amortization have not been recorded for 2025.

Prepare the journal entries for December 31, 2025.

Expert Solution

Answer:
Face Value of Bonds = $540,000
Issue Price of Bonds = $540,000 * 97%
Issue Price of Bonds = $523,800

Discount on Bonds Payable = Face Value of Bonds – Issue Price of Bonds
Discount on Bonds Payable = $540,000 - $523,800
Discount on Bonds Payable = $16,200

Life of Bonds = 10 years

Discount on Bonds Payable to be amortized annually = $16,200 / 10
Discount on Bonds Payable to be amortized annually = $1,620

No. of years expired = January 1, 2020 to December 31, 2025 = 6 years

Discount on Bonds payable amortized till December 31, 2025 = $1,620 * 6
Discount on Bonds payable amortized till December 31, 2025 = $9,720

Unamortized discount = $16,200 - $9,720 = $6,480

Carrying Value of Bonds on December 31, 2025 = Issue Price + Discount amortized
Carrying Value of Bonds on December 31, 2025 = $523,800 + $9,720
Carrying Value of Bonds on December 31, 2025 = $533,520

ekkarill92 answered 1 year ago

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