Question

Bond Redemption

St. Wyncomb Co. issued 10 percent, $420,000 face value bonds with a 20 year maturity at 96 on Jnuary 1, 2002. The bonds are callable at 104 after one year. St. Wyncomb Co. decided to call the bonds after interest rates dropped on December 31. 2004. To finance the retirement, St. Wyncomb issued 8 percent, $440,000 face value bonds with a 20 year maturity at 102 on December 31, 2004.

1. Prepare an amortization schedule for the first three years for the original bonds, and the first two years of the new bonds.

2. Prepare the journal entries to recorn the following.

a. Issue of original bonds.

b. Annual interest payment in the year of the redemption, 2004 for the original bonds.

c. Isue of new bonds.

d. Redemption of original bonds.

e. First annual interest payment for the new bonds.

3. Prepare a T-Account for the dincount accond for the original bonds.

****Please show work so I can follow along****

Answer 1

Answer 1.
Discount Amortization Schedule
Date	Interest Paid - $420,000 X 10%	Interest Expense	Discount Amortization	Unamortized Discount	Bonds Carrying Amount
	A	B	C = 16,800 / 20	D = D - C	E = $420,000 - D
1-Jan-02	-	-	-	16,800.00	403,200.00
31-Dec-02	42,000.00	42,840.00	840.00	15,960.00	404,040.00
31-Dec-03	42,000.00	42,840.00	840.00	15,120.00	404,880.00
31-Dec-04	42,000.00	42,840.00	840.00	14,280.00	405,720.00
Premium Amortization Schedule
Date	Interest Paid - $440,000 X 8%	Interest Expense - Preceeding Bond Carrying Value	Premium Amortization	Unamortized Premium	Bonds Carrying Amount
	A	B = A - C	C = $8,800 / 20	D = D - C	E = $440,000 + D
31-Dec-04	-	-	-	8,800.00	448,800.00
31-Dec-05	6,500.00	6,060.00	440.00	8,360.00	448,360.00
31-Dec-06	6,500.00	6,060.00	440.00	7,920.00	447,920.00

Answer 2.
	Journal Entry
S.no.	Date	Particulars	Dr. Amt.	Cr. Amt.
a.	1-Jan-02	Cash	403,200.00
		Discount on Issue of Bonds	16,800.00
		Bonds Payable		420,000.00
		(Record the issue of Bonds)
b.	31-Dec-04	Interest Expense	42,840.00
		Cash		42,000.00
		Discount on Issue of Bonds		840.00
		(Record the interest paid)
c.	31-Dec-04	Cash	448,800.00
		Bonds Payable		440,000.00
		Premium on Issue of Bonds		8,800.00
		(record the issue of Bonds)
d.	31-Dec-04	Bonds Payable	405,720.00
		Gain on Redemption of Bonds	28,560.00
		Cash		420,000.00
		Discount on issue of Bonds		14,280.00
		(record the redemption of bonds)
e.	31-Dec-05	Interest Expense	6,060.00
		Premium on Issue of Bonds	440.00
		Cash		6,500.00
		(Record the interest paid)

Answer 3.
Discount on Issue of Bonds
1-Jan-02	16,800.00	840.00	31-Dec-02
		840.00	31-Dec-03
		840.00	31-Dec-04
		14,280.00	31-Dec-04
End. Bal.	-