Question

Exercise 10-9 Straight-Line: Bond computations, amortization, and bond retirement LO P2, P4 (The following information applies to the questions displayed below.) On January 1, 2017, Shay issues $330,000 of 12%, 15-year bonds at a price of 97.00. Six years later, on January 1, 2023, Shay retires 20% of these bonds by buying them on the open market at 104.50. All interest is accounted for and paid through December 31, 2022, the day before the purchase. The straight-line method is used to amortize any bond discount. Exercise 10-9 Part 6 6. What is the amount of the recorded gain or loss from retiring the bonds? Loss on retirement

Answer 1

Par value of the bonds issued Market value of the bonds issued Discount on bonds issued Number of years to maturity Discount amortized per year Number of years bonds were held Discount amortized for 6 years $330,000 $320,100 ($330000 x 97%] $9,900 [$330000 - $320100] 15 $660 ($9900 / 15 years --> Under straight line method] $3,960 ($660 x 6 years --> Under straight line method] Therefore, Book value of the bonds $324,060 [$330000 - ($9900 - $3960) = $330000 - $5940 = $324060] % of bonds retired 20% Book value of the bonds retired $64,812 [$324060 x 20%] Market value of the bonds retired $68,970 ($330000 x 20% x 104.5%] Loss on retirement of the bonds $4,158 ($68970 - $64812)