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On January 1, 2014, GLOBAL FINANCIAL INV. Holding has issued bonds which were having OMR 400,000...

On January 1, 2014, GLOBAL FINANCIAL INV. Holding has issued bonds which were having OMR 400,000 as par value but they were issued for 93. It was evident from the records that the due date for such bonds was in 2024.

Considering the fact of Market rate in mind, GLOBAL FINANCIAL INV. Holding takes a hard decision to call its bonds back on 1stJanuary 2019 and then cancel them at 101.

Annual interest which was paid by the GLOBAL FINANCIAL INV. Holding is 8% and it has been observed that the amortization of the discount was done using reducing balance method.

a) Calculate the amount of Amortized and un-Amortized discount.        

b) Pass journal entries from January 1, 2014 to January 1, 2019

Solutions

Expert Solution

a) Amortization shedule as given below:
Total Discount to be amortised (4,00,000*(100%-93%) = 28,000 OMR
Amortization amount each year from 2014 to 2024(begning) (28,000/10) = OMR 2,800
Unamortised Discount Balance as on 01/01/2019 (28000-(2800*5))= OMR 14,000
b) Journal Entry
2014 Bank A/c ………………………Dr 372000
Dis. On Bond A/c …………Dr 28000
        To Bond Payable A/c 400000
2014
to Amortization Exp/ A/c …..Dr 2,800
2018       To Dis. On Bond A/c 2,800
2014 Interest Exp. A/c…………..Dr
to      To Bank A/c
2018
2019 Bond Payable A/c …………Dr 400000
Dis. On Bond A/c…………..Dr 4000
     To Bank 404000

ekkarill92 answered 2 years ago
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