Homework Answers
| Computation of Gain/ Loss on redemption of Bonds: | |||||||
| Par value of Bonds | 790000 | ||||||
| issue price of bonds (790000*98%) | 774200 | ||||||
| Total Discount on bonds | 15800 | ||||||
| Discount amortized in 9 years | 7110 | ||||||
| (15800 / 40 * 18 ) | |||||||
| Unamortized Discount on bonds on 30.06.18 | 8690 | ||||||
| Book value of bonds on 30.06.18 (790000-8690) | 781310 | ||||||
| Redemption value of bonds (790000*104%) | 821600 | ||||||
| Loss on redemption of bonds | -40290 | ||||||
| Issue price and Total premium on issue of new bonds: | |||||||
| Par value of bonds | 900000 | ||||||
| Issue price per bond | 101 | ||||||
| Issue price of bonds (900000*101%) | 909000 | ||||||
| Total Premium on bonds (909000-900000) | 9000 | ||||||
| Premium amortized and cash interest paid on First interest date: | |||||||
| Cash interest paid (900000*8%*6/12) | 36000 | ||||||
| Premium amortized (9000 /40 *1) | 225 | ||||||
| Interest expenses for the period | 35775 | ||||||
| Journal entries: | |||||||
| Date | Accounts title and explanations | Debit $ | Credit $ | ||||
| a. | 12% bonds payable | 790000 | |||||
| loss on redemption of bonds | 40290 | ||||||
| Cash account | 821600 | ||||||
| Discount on bonds payable | 8690 | ||||||
| b. | Cash account | 909000 | |||||
| 9% bonds payable | 900000 | ||||||
| Premium on bonds payable | 9000 | ||||||
| c. | Interest expenses | 35775 | |||||
| Premium on bonds payable | 225 | ||||||
| Cash account | 36000 | ||||||
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