Question

Exercise 9-17A Record the early retirement of bonds issued at a premium (LO9-6)

[The following information applies to the questions displayed below.]

On January 1, 2021, White Water issues $600,000 of 7% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year. The market interest rate on the issue date is 6% and the bonds issued at $644,632.

Exercise 9-17A Part 1

Required:

1. Using an amortization schedule, show that the bonds have a carrying value of $633,887 on December 31, 2023.

Required information

Exercise 9-17A Record the early retirement of bonds issued at a premium (LO9-6)

[The following information applies to the questions displayed below.]

On January 1, 2021, White Water issues $600,000 of 7% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year. The market interest rate on the issue date is 6% and the bonds issued at $644,632.

Exercise 9-17A Part 2

2. If the market interest rate increases to 8% on December 31, 2023, it will cost $568,311 to retire the bonds. Record the retirement of the bonds on December 31, 2023.

Answer 1

Exercise 9-17A Part 1:

Amortization schedule for 10 years, in which bond showing carrying value as $ 633,887 on December 31, 2023:

Bond Face Value	600000
Bond Issued at Premium	44632
Bond Book Value	644632
Bond Interest Rate	7%
Market Interest Rate	6%
Interest Payable	2	(i.e.) Semi annually / twice a year

Date	Interest in which Bond issued	Market Interest Expense	Amortisation of Bond Premium	Carrying value of Bond Premium acct	Bonds Payable Acct	Carrying value of Bond
	Bond Face Value x Bond Interest rate	Bond book value x Market interest rate	Difference between previous two columns
1-Jan-21				44,632	600,000	644,632
30-Jun-21	21,000	19,339	1,661	42,971	600,000	642,971
31-Dec-21	21,000	19,289	1,711	41,260	600,000	641,260
30-Jun-22	21,000	19,238	1,762	39,498	600,000	639,498
31-Dec-22	21,000	19,185	1,815	37,683	600,000	637,683
30-Jun-23	21,000	19,130	1,870	35,813	600,000	635,813
31-Dec-23	21,000	19,074	1,926	33,887	600,000	633,887
30-Jun-24	21,000	19,017	1,983	31,904	600,000	631,904
31-Dec-24	21,000	18,957	2,043	29,861	600,000	629,861
30-Jun-25	21,000	18,896	2,104	27,757	600,000	627,757
31-Dec-25	21,000	18,833	2,167	25,590	600,000	625,590
30-Jun-26	21,000	18,768	2,232	23,358	600,000	623,358
31-Dec-26	21,000	18,701	2,299	21,059	600,000	621,059
30-Jun-27	21,000	18,632	2,368	18,691	600,000	618,691
31-Dec-27	21,000	18,561	2,439	16,252	600,000	616,252
30-Jun-28	21,000	18,488	2,512	13,740	600,000	613,740
31-Dec-28	21,000	18,412	2,588	11,152	600,000	611,152
30-Jun-29	21,000	18,335	2,665	8,487	600,000	608,487
31-Dec-29	21,000	18,255	2,745	5,742	600,000	605,742
30-Jun-30	21,000	18,172	2,828	2,914	600,000	602,914
31-Dec-30	21,000	18,087	2,914	(0)	600,000	600,000

If Bond has to retire on December 31, 2023 (i..e) early than maturity date, Journal entry to be recorded as below:

Since cash for which bond has retired is not given, assume the full value has been paid and no gain / loss on retirement accounted:

31-Dec-23	Dr. Bond Payable	600,000
	Dr. Bond Premium	33,887
	Cr. Cash		633,887
	(Being Bond retired early than maturity date)

Exercise 9-17A Part 2:

Journal entry for retirement of bond on December 31, 2023 for $ 568,311 as below:

31-Dec-23	Dr. Bond Payable	600,000
	Dr. Bond Premium	33,887
	Cr. Cash		568,311
	Cr. Gain on retirement of Bond		65,576
	(Being Bond retired early than maturity date at cost of $ 568,311)

Answer 2