1. In the books of Ashraf Ltd. :
Date | Account Titles | Debit | Credit |
$ | $ | ||
June 30, 2017 | Cash | 4,229,376 | |
Premium on Bonds Payable | 229,376 | ||
Bonds Payable | 4,000,000 | ||
To record issuance of bonds payable |
2.
Ashraf
Ltd. Statement of Financial Position ( Partial ) December 31, 2017 |
||
Liabilities | ||
Long Term Liabilities | ||
Bonds Payable | ||
Par Value | 4,000,000 | |
Premium on Bonds Payable | 226,257.28 | 4,226,257.28 |
3.
Date | Account Titles | Debit | Credit |
$ | $ | ||
June 30, 2018 | Interest Expense | 126,787.71 | |
Premium on Bonds Payable | 3,212.29 | ||
Interest Payable | 130,000 | ||
Cash | 260,000 | ||
To record payment on interest on bonds |
4.
Date | Account Titles | Debit | Credit |
$ | $ | ||
June 30, 2018 | Bonds Payable | 4,000,000 | |
Premium on Bonds Payable | 223,045 | ||
Gain on Redemption of Bonds | 143,045 | ||
Cash | 4,080,000 |
Gain on redemption of $ 143,045 would be reported as other income on the statement of earnings, and deducted in the Operating Activities section of the statement of cash flows, while, $ 4,080,000 would be reported as an outflow under the Financing Activities section as cash paid to redeem bonds payable.
5. The market interest rate has decreased further, causing the bond price to fall. It would make financial sense to sell the bonds at a gain.
AP10-5 Recording Bond Issuance, Interest Expense, and Effects of Bond Redemption of Financial Statements (Effective-Interest Method)...
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