On January 1, 2017, Shay issues $270,000 of 9%, 15-year bonds at a price of 97.00....

On January 1, 2017, Shay issues $270,000 of 9%, 15-year bonds at a price of 97.00. Six years later, on January 1, 2023, Shay retires 30% of these bonds by buying them on the open market at 105.00. All interest is accounted for and paid through December 31, 2022, the day before the purchase. The straight-line method is used to amortize any bond discount.

1. How much does the company receive when it issues the bonds on January 1, 2017?

2. What is the amount of the discount on the bonds at January 1, 2017?

3. How much amortization of the discount is recorded on the bonds for the entire period from January 1, 2017, through December 31, 2022?

5. How much did the company pay on January 1, 2023, to purchase the bonds that it retired?

6. What is the amount of the recorded gain or loss from retiring the bonds?

7. Prepare the journal entry to record the bond retirement at January 1, 2023. (Record the retirement of 30% of the bonds before maturity on January 1, 2023.)

Expert Solution

Req 1.
Par value of Bonds	270000
Issue Price	97
Cash received on Issue	261900

Rreq 2:
Maturity value	270000
Less: Issue price	261900
Total Discount on Bonds	8100

Req 3:
Period expires (Jan 2017-Dec2022)		6 years
Annual Amortization of discount (8100/15)		540
Discount Amortized in 6 years (540*6)		3240

Req 5:
Maturity value of Bonds retired (270000*30%)		81000
Redemption price		105
Amount to be paid on Bonds retired		85050

Req 6:
Book value of Bonds retired	81000
Less: Unamortized discount	1458
(8100-3240)*30%
Book value of Bonds retired	79542
Less: Amount paid on retirement	85050
Loss on retirement	5508

Req 7.
Journal entry
Bonds payable Account Dr.	81000
Lloss on retirement of bonds Dr.	5508
Cash account		85050
Discount on bonds payable		1458

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