Question

Kershaw Electric sold $4,600,000, 10%, 10-year bonds on January 1, 2017. The bonds were dated January 1, 2017, and paid interest on January 1. The bonds were sold at 95.

At December 31, 2017, $8,100 of the Discount on Bonds Payable account has been amortized. Show the balance sheet presentation of the long-term liability at December 31, 2017.

On January 1, 2019, when the carrying value of the bonds was $4,386,200, the company redeemed the bonds at 103. Record the redemption of the bonds assuming that interest for the period has already been paid

Answer 1

Req 1:
Par value of bonds: $ 4600,000
Issue price: $95
Total Cash received on bonds (46000*95): $ 4370,000
Total Discount on bonds payable: $4600,000 -4370,000 = $ 230,000
Discount amortized on DEC 31 , 2017: $ 8100
Balance in Discounts on Bonds payable: 230,000 -8100 = $ 221,900
BALANCE SHEET PRESENTATION:
Long term Lliabilities:
Bonds payable			4,600,000
Less: Discount on bonds payable			221,900
Net amount of Bonds payable				4,378,100
Req 2:
Cash paid on redemption (46000*103): $ 4738,000
Balance in Discount on Bonds payable: Par value of Bondns-carrying value of bonds
			4600,000 -4386200 = $ 213,800
JOURNAL ENTRY FOR REDEMPTION ON JAN1,2019:
1-Jan-19	Bonds Payable Dr.			4,600,000
	Loss on Redemption of Bonds			351,800
	Discount on Bonds payable				213800
	Cash				4738000