Question

On March 31, 2014, Hanson Corporation sold $9,000,000 of its 8%, 10-year bonds for $6,730,500 including accrued interest. The bonds were dated January 1, 2014. Interest is paid semiannually on January 1 and July 1. On April 1, 2018, Hanson purchased 1/2 of the bonds on the open market at 99 plus accrued interest and canceled them. Hanson uses the straight-line method for amortization of bond premiums and discounts.

What was the amount of the gain or loss on retirement of the bonds?

Prepare the journal entry needed at April 1, 2018 to record retirement of the bonds. Assume that interest and premium or discount amortization have been recorded through January 1, 2018. Record interest and amortization on only the bonds retired.

Prepare the journal entry needed at July 1, 2018 to record interest and premium or discount amortization.

On January 1 of the current year, Feller Corporation issued $6,000,000 of 10% debenture bonds on a basis to yield 9%, receiving $6,269,160. Interest is payable annually on December 31 and the bonds mature in 6 years. The effective-interest method is used.

What is the interest expense for the first year?

What is the interest expense for the second year?

On October 1, 2017, Noller Company issued $8,000,000 par value, 10%, 10-year bonds dated July 1, 2017, with interest payable semiannually on January 1 and July 1. The bonds are issued at $9,084,000 (to yield 8%) plus accrued interest. The effective interest method is used.

Prepare the journal entry at the date the bonds are issued.

Prepare the adjusting entry at December 31, 2017, the end of the fiscal year.

Prepare the entry for the interest payment on January 1, 2018.

Answer 1

1)

a)
Face Value of Bonds		$9,000,000.00
Total selling price	$6,730,500.00
Less accrued interest ($9,000,000 × .08 × 3/12)	-$180,000.00
Carrying value at 3/31/14	$6,550,500.00
Discount at 3/31/14 ($9,000,000 - $6,550,500)	$2,449,500.00
Less discount amortized ($2,449,500 ÷ 117 months × 48 months)	-$1,004,923.08
Unamortized discount at 4/1/18		$1,444,576.92
Carrying value at 4/1/18		$7,555,423.08
Carrying value of 1/2 of the bonds		$3,777,711.54
Less acquisition price ($9,000,000 ×.99 × 1/2)		$4,455,000.00
Loss on Retirement		-$677,288.46
b)
Accounts and Titles	Debit	Credit
Interest Expense	$58,596.15
Discount on Bonds Payable	$31,403.85
Cash		$90,000.00
(To accrue interest to 4/1/18: $9,000,000 × .08 × 3/12 × 1/2 = $90,000)
Discount = $2,449,500/117 months x 3 months x 1/2
Bonds Payable ($9,000,000 x 1/2)	$4,500,000.00
Loss on Redemption of Bonds	$677,288.46
Discount on Bonds Payable ($2,449,500 × 1/2)		$1,224,750.00
Cash		$3,952,538.46
To record of retirement of bonds)
c)
Interest Expense	$117,192.31
Discount on Bonds Payable	$62,807.69
Cash		$180,000.00
(To accrue interest to 4/1/18: $9,000,000 × .08 × 3/12 × = $180,000)
Discount = $2,449,500/117 months x 6 months x 1/2