Willow Creek Manufacturing, Inc. issued $7,000,000 face value of bonds at 99 on January 1, 2019....
Willow Creek Manufacturing, Inc. issued $7,000,000 face value of bonds at 99 on January 1, 2019. The bonds are dated January 1, 2019, pay interest semi-annually at 6% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On January 1, 2024, $4,200,000 of the bonds are called at 101.
1. The cash paid by Willow Creek Manufacturing when the bonds are redeemed would be...
2. The gain or loss on the bond redemption recorded by Willow Creek Manufacturing on 1/1/24 would be...
Homework Answers
| 1 | Cash paid when redeemed = $4,200,000 x 101/100 = $4,242,000 |
| 2 | Issue price of bonds = $7,000,000 x 99/100 = $6,930,000 |
| Discount on bonds payable = $7,000,000 - $6,930,000 = $70,000 | |
| Discount on bonds payable pertaining to bonds redeemed = $70,000 x $4,200,000/$7,000,000 = $42,000 | |
| Discount amortized upto January 1, 2024 = $42,000 x 10/20 = $21,000 | |
| Balance in Discount on bonds payable on January 1, 2024 = $42,000 - $21,000 = $21,000 | |
| Carrying value of bonds redeemed = $4,200,000 - $21,000 = $4,179,000 | |
| Loss on the bond redemption = $4,242,000 - $4,179,000 = $63,000 |
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