Question

E15-8 Presented below are three independent situations. 1. Longbine Corporation redeemed $130,000 face value, 12% bonds on June 30, 2017, at 102. The carrying value of the bonds at the redemption date was $117,500. The bonds pay annual interest, and the interest payment due on June 30, 2017, has been made and recorded. 2. Tastove Inc. redeemed $150,000 face value, 12.5% bonds on June 30, 2017, at 98. The carrying value of the bonds at the redemption date was $151,000. The bonds pay annual interest, and the interest payment due on June 30, 2017, has been made and recorded. 3. Precision Company has $80,000, 8%, 12-year convertible bonds outstanding. These bonds were sold at face value and pay annual interest on December 31 of each year. The bonds are convertible into 30 shares of Precision $5 par value common stock for each $1,000 worth of bonds. On December 31, 2017, after the bond interest has been paid, $20,000 face value

Answer 1

Solution:

1)

June.30,2017	Bonds Payable	$ 130,000.00
	Loss on Redemption of Bonds	$    15,100.00
	Discount on Bond Payable (Unamortized)		$    12,500.00
	Cash		$ 132,600.00
	( Being Bond Redeemed)

2)

June.30,2017	Bonds Payable	$ 150,000.00
	Premium on Bond Payable (Unamortized)	$      1,000.00
	Gain on Redemption of Bonds		$      4,000.00
	Cash		$ 147,000.00
	( Being Bond Redeemed)

3)

Dec.31,2017	Bonds Payable	$    20,000.00
	Loss on Redemption of Bonds	$      6,400.00
	Paid in Capital in Excess of Par		$    23,400.00
	Common Stock		$      3,000.00
	( Being Bond Converted)

Note:

Gain/ Loss on redemption of bond = Redemption price - carrying amount of bond  

1)Loss on redemption of bond = $132,600 - $117,500 = $15,100

2)Gain on redemption of bond = $147,000 - $151000 = $ 4,000

3)Loss on redemption of bond = $26,400- $20,000 =$6,400