On January 2, 2015, Flint Corporation issued $1,750,000 of 10% bonds at 98 due December 31,...
On January 2, 2015, Flint Corporation issued $1,750,000 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, Flint called $1,050,000 face amount of the
bonds and redeemed them.
Ignoring income taxes, compute the amount of loss, if any, to be
recognized by Flint as a result of retiring the $1,050,000 of bonds
in 2020.
| Loss on redemption | $. |
Prepare the journal entry to record the redemption.
Please explain the process in getting to the answer
Homework Answers
Issue price of bonds = 1750000*.98 = 1715000
Discount on bonds payable = 1750000-1715000 = 35000
Annually amortization = 35000/10 = 3500
January 2,2020 Carrying value = 1715000+(3500*5) = 1732500
value of 1050000 Bonds = 1732500/1750000*1050000 = 1039500
Loss on redemption = 1050000*1.01-1039500 = 21000
Journal entry
| Date | account and explanation | Debit | Credit |
| Bonds payable | 1050000 | ||
| Loss on redemption on bonds | 21000 | ||
| Discount on bonds payable | 10500 | ||
| Cash | 1060500 | ||
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