Question

On January 2, 2012, Concord Corporation issued $2,250,000 of 10% bonds at 98 due December 31, 2021. 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 102 (i.e., at 102% of face amount), and on January 2, 2017, Concord called $1,350,000 face amount of the bonds and redeemed them.

Ignoring income taxes, compute the amount of loss, if any, to be recognized by Concord as a result of retiring the $1,350,000 of bonds in 2017. (Round answer to 0 decimal places, e.g. 38,548.)

Loss on redemption

$

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, 2017

Answer 1

Ans:

• Calculation of the Loss on Redemption:

Unamortized Discount = [(Bonds to be redeemed x Discount given at the time of issue) / Total no. of life] x Remaining Life

....................................= [($1,350,000 x 2%) / 10 years] x 5 years

....................................= $13,500

Particulars	Amount	Amount
Requisition Price ($1,350,000 x 102%)		$1,377,000
Less: Par Value	$1,350,000
Unamortized Discount	($13500)	$1,336,500
Loss on Redemption		$40500

Therefore, the loss on redemption of bonds is $40500

Preparing Journal Entries to record the Redemption:

Date	General Journal	Debit	Credit
2/1/2017	Bonds Payable	$1,350,000
	Loss on Redemption of Bonds	$40500
	Discount on Bonds Payable		$13,500
	Cash		$1,377,000