January 1, 2018: Excel Corporation issued 15 year, 8% bonds with a face value of $1,675,000. The bonds were sold to yield 9%. Interest is payable semi-annually on January 1 and July 1. On January 1, 2024, Excel Corporation paid the interest payment due on that date and then called all the bonds at 103.5.
What is the amount of gain or loss on this call? Prepare all journal entries for the call date, January 1, 2024.
Solution:
Computation of bond Issue price | |||
Table values are based on: | |||
n= | 30 | ||
i= | 4.50% | ||
Cash flow | Table Value | Amount | Present Value |
Par (Maturity) Value | 0.267 | $1,675,000.00 | $447,225 |
Interest (Annuity) | 16.289 | $67,000.00 | $1,091,356 |
Price of bonds | $1,538,581 |
Bond Amortization Schedule - Effective interest method | |||||
Date | Cash Paid | Interest Expense | Discount Amortized | Unamortized Discount | Carrying Value |
1-Jan-18 | $136,419 | $1,538,581 | |||
1-Jul-18 | $67,000 | $69,236 | $2,236 | $134,183 | $1,540,817 |
1-Jan-19 | $67,000 | $69,337 | $2,337 | $131,846 | $1,543,154 |
1-Jul-19 | $67,000 | $69,442 | $2,442 | $129,404 | $1,545,596 |
1-Jan-20 | $67,000 | $69,552 | $2,552 | $126,852 | $1,548,148 |
1-Jul-20 | $67,000 | $69,667 | $2,667 | $124,186 | $1,550,814 |
1-Jan-21 | $67,000 | $69,787 | $2,787 | $121,399 | $1,553,601 |
1-Jul-21 | $67,000 | $69,912 | $2,912 | $118,487 | $1,556,513 |
1-Jan-22 | $67,000 | $70,043 | $3,043 | $115,444 | $1,559,556 |
1-Jul-22 | $67,000 | $70,180 | $3,180 | $112,264 | $1,562,736 |
1-Jan-23 | $67,000 | $70,323 | $3,323 | $108,941 | $1,566,059 |
1-Jul-23 | $67,000 | $70,473 | $3,473 | $105,468 | $1,569,532 |
1-Jan-24 | $67,000 | $70,629 | $3,629 | $101,839 | $1,573,161 |
Carrying value of bond on 01.01.2024 = $1,573,161
Call value of bond = $1,675,000*103.5% = $1,733,625
Loss on call of bond = $1,573,161 - $1,733,625 = $160,464
Journal Entries | |||
Date | Particulars | Debit | Credit |
1-Jan-24 | Interes payable Dr | $67,000.00 | |
To Cash | $67,000.00 | ||
(To record interest payment) | |||
1-Jan-24 | Bond payable Dr | $1,675,000.00 | |
Loss on retirement of bond Dr | $160,464.00 | ||
To Cash | $1,733,625.00 | ||
To Discount on issue of bond | $101,839.00 | ||
(To record early retirement of bonds) |
January 1, 2018: Excel Corporation issued 15 year, 8% bonds with a face value of $1,675,000. The ...
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