Question
Entries and Loss of Redemption
On January 2, 2015, Oriole Corporation issued $1,450,000 of 10% bonds at 97 due December 31, 2024. Interest on the bonds is p
Loss on redemption $ repare the journal entry to record the redemption. (Round answers to decimal places, e.g. 38,548. If no
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Answer:
Face Value of Bonds = $1,450,000

Issue Price of Bonds = $1,450,000 * 97%
Issue Price of Bonds = $1,406,500

Premium (Discount) on Bonds Payable = Issue Price of Bonds – Face Value of Bonds
Premium (Discount) on Bonds Payable = $1,406,500 - $1,450,000
Premium (Discount) on Bonds Payable = -$43,500

Interest to be paid annually = $1,450,000 * 10%
Interest to be paid annually = $145,000

Discount to be amotized annually = $43,500 / 10
Discount to be amotized annually = $4,350

Discount amortized till Jan 2, 2020 = $4,350 * 5
Discount amortized till Jan 2, 2020 = $21,750

Unamortized discount - $43,500 - $21,750 = $21,750

Carrying Value of Bonds on Jan 2, 2020 = Issue Price + Discount amortized
Carrying Value of Bonds on Jan 2, 2020 = $1,406,500 + $21,750
Carrying Value of Bonds on Jan 2, 2020 = $1,428,250

Face Value of Bonds redeemed = $870,000

Carrying Value of Bonds redeemed = $1,428,250 / $1,450,000 * $870
Carrying Value of Bonds redeemed = $856,950

Unamortized discount on bonds redeemed = $21,750 / $1,450,000 * $870,000
Unamortized discount on bonds redeemed = $13,050

Redemption Cost paid for Bonds = $870,000 * 102%
Redemption Cost paid for Bonds = $887,400

Loss on Redemption = Redemption Cost paid for Bonds – Carrying value of bonds redeemed
Loss on Redemption = $887,400 - $856,950
Loss on Redemption = $30,450

Credit Date Jan 2, 2020 Account Titles and Explanation Bonds Payable Loss on Redemption of Bonds Cash Discount on Bonds Payab

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