Question

Exercise 14-12 Partially correct answer. Your answer is partially correct. Try again. On January 2, 2012, Cheyenne Corporation issued $2,100,000 of 10% bonds at 97 due December 31, 2021. Interest on the bonds is payable annually each December 31. The discount on the bonds is also being amortized on a straight-line basis over the 10 years. (Straight-line is not materially different in effect from the preferable “interest method”.) The bonds are callable at 102 (i.e., at 102% of face amount), and on January 2, 2017, Cheyenne called $1,260,000 face amount of the bonds and redeemed them. Ignoring income taxes, compute the amount of loss, if any, to be recognized by Cheyenne as a result of retiring the $1,260,000 of bonds in 2017. (Round answer to 0 decimal places, e.g. 38,548.) Loss on redemption $Entry field with incorrect answer 56228 Prepare the journal entry to record the redemption. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit January 2, 2017 Entry field with correct answer Bonds Payable Entry field with correct answer 1260000 Entry field with correct answer Entry field with incorrect answer Gain on Redemption of Bonds Entry field with incorrect answer 56228 Entry field with correct answer Entry field with correct answer Discount on Bonds Payable Entry field with correct answer Entry field with incorrect answer 31028 Entry field with correct answer Cash Entry field with correct answer Entry field with correct answer 1285200

Answer 1

Solution:

Face amount of bonds redeemed = $1,260,000 (issued at 97)

Issue price of these bonds = $1260000 *97% = $1,222,200

Discount On issue = 1260000-1222200 = $37,800

Maturity period = 10 year

Redeemed on January 2, 2017. Therefore discount amortized upto January 2, 2017 (i.e. 5years) = $37,800*5/10 = $18,900

Unamortized discount on redemption = $37,800 - $18,900 = $18,900

Cash received on redemption = $1260000*102% = $1,285,200

Loss on redemption = Cash received + unamortzed discount on redemption - Face amount of bonds redeemed =

= $1285200 +$18900 - $1260000 = $44,100

Date	Particulars	Debit	Credit
2-Jan-17	Bonds Payable Dr	$1,260,000.00
	Loss on redemption of Bonds Dr	$44,100.00
	To Discount on issue of Bond (Unamortized)		$18,900.00
	To Cash A/c		$1,285,200.00
	(To record redemption of bonds of face value $1260000 at 102)