Exercise 14-12
On January 2, 2015, Stellar Corporation issued $1,550,000 of 10%
bonds at 98 due December 31, 2024. 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 101 (i.e., at 101% of face amount), and
on January 2, 2020, Stellar called $930,000 face amount of the
bonds and redeemed them.
Ignoring income taxes, compute the amount of loss, if any, to be
recognized by Stellar as a result of retiring the $930,000 of bonds
in 2020. (Round answer to 0 decimal places, e.g.
38,548.)
Loss on redemption | $enter a dollar amount of loss on redemption rounded to 0 decimal places |
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, 2020 |
enter an account title to record the transaction on January 2, 2017 | enter a debit amount | enter a credit amount |
enter an account title to record the transaction on January 2, 2017 | enter a debit amount | enter a credit amount | |
enter an account title to record the transaction on January 2, 2017 | enter a debit amount | enter a credit amount | |
enter an account title to record the transaction on January 2, 2017 | enter a debit amount | enter a credit amount |
Answer
--Loss on redemption = $ 18,600
A | Face Value | $930,000 |
B = A x 98/100 | Issue Price | $911,400 |
C = A - B | Discount on Bonds Payable | $18,600 |
D = 10 years | No. of interest payment | 10 |
E = C/D | Annual amortisation of discount | $1,860 |
F = E x 5 years | Discount amortised till 2 Jan 2020 [5 years] | $9,300 |
G = C - F | Unamortised discount | $9,300 |
H = A - G | Book Value of Bonds Payable | $920,700 |
I = A x 101% | Cash paid on redepmtion | $939,300 |
J = I - H | Loss on redemption | $18,600 Answer |
--Journal entry to record redemption
Date | Accounts title | Debit | Credit |
02-Jan-20 | Bonds Payable | $930,000 | |
Loss on redemption | $18,600 | ||
Discount on Bonds payable | $9,300 | ||
Cash | $939,300 |
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