Question

Balboa Corporation issued $1,500,000 of 11% bonds at 97 on January 2, 2019. Interest is paid semiannually on June 30 and December 31. The bonds had a 10-year life from the date of issue, and the company uses the straight-line method of amortization. On April 30, 2021, Balboa recalls the bonds at the call price of 105 plus accrued interest. Journal entries for 2021 would include: a credit to Discount on Bonds Payable of $1,125 a credit to Discount on Bonds Payable of $36,000 Ο Ο Ο Ο a credit to Cash of $1,575,000 a debit to Loss of $109,500

Answer 1

Issue price of bonds = 1500000*97% =	$ 1,455,000
Discount = 1500000-1455000 =	$          45,000
Semi-annual amortization = 45000/20 =	$            2,250
Total discount amortized till December 31, 2020 = 2250*4 =	$            9,000
Discount to be amortized for the period 2019 to 2020 = 2250*4/6 =	$            1,500
Accrued interest = 1500000*(11%/2)*(4/6) =	$          55,000
Cash paid on redemption = 1500000*105% =	$ 1,575,000
Balance in redemption account on date of redemption = 45000-9000-1500 =	$          34,500
Loss on redemption = 34500+75000 =	$        109,500
ANSWERS:
Journal entries for 2021 would include:
*a credit to cash for $1,575,000
*a debit to loss of $109,500