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
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