Question

On January 1, 2019, Shay Company issues $400,000 of 10%, 12-year bonds. The bonds sell for $391,000. Six years later, on January 1, 2025, Shay retires these bonds by buying them on the open market for $419,000. All interest is accounted for and paid through December 31, 2024, the day before the purchase. The straight-line method is used to amortize any bond discount.

1. What is the amount of the discount on the bonds at issuance?
2. How much amortization of the discount is recorded on the bonds for the entire period from January 1, 2019, through December 31, 2024?
3. What is the carrying (book) value of the bonds as of the close of business on December 31, 2024?
4. Prepare the journal entry to record the bond retirement.

1. What is the amount of the discount on the bonds at issuance? 2. How much amortization of the discount is recorded on the bonds for the entire period from January 1, 2019, December 31, 2024? Amount of discount 1 2 Amortization of discount KReq 1 and 2 Req 3

Answer 1

C8 1 А C D E G 1 par value issue price $400,000 $391,000 $9,000 2 3 total discount 4 life of bonds 5 12 $750 annual discount amortization 6 7 $9,000 $4,500 amount of discount 8 1 amortization of discount 2 10 $400,000 11 3 par value remaining discount carrying value $4,500 $395,500 12 13 14 general journal date debit credit 15 16 bonds payable loss on retirement of bonds $400,000 17 1-Jan $23,500 18 discount on bonds payable $4,500 19 cash 20 419000 (to record retirement of bonds) 21 22 23 24 . st LO

for formulas and calculations, refer to the image below -

fix C8 1 C А D Е G 1 par value issue price 400000 2 391000 3 -E2-E3 total discount 4 life of bonds 12 5 annual discount amortization E4/E5 6 7 -E4 8 1 amount of discount -E6*6 amortization of discount 9 2 10 par value -E2 11 3 -E4-E9 remaining discount carrying value 12 -E11-E12 13 14 general journal date debit credit 15 16 45658|bonds payable -E11 17 loss on retirement of bonds discount on bonds payable -F20+F19-E17 18 -E12 19 419000 cash 20 (to record retirement of bonds) 21 22 23 24 LU .. st

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