Question

Required information Exercise 10-9 Straight-Line: Bond computations, amortization, and bond retirement LO P2, P4 [The following information applies to the questions displayed below On January 1, 2017, Shay issues $700,000 of 10%, 15-year bonds at a price of 9734 Six years later, on January 1, 2023, Shay retires 20% of these bonds by buying them on the open market at 104½ All interest is accounted for and paid through December 31, 2022, the day before the purchase. The straight-line method is used to amortize any bond discount. Exercise 10-9 Part 1 1. How much does the company receive when it issues the bonds on January 1, 2017? Cash proceeds from sale of bonds at issuance

Answer 1

Par value of bond issued = $ 700, 000 is the prize = $ 97.75 Therefore cash received from sale of bonds at issuance = 700, 000 times 97.75/100 = $ 684, 250 Amount of discount = Par value - cash received = 700, 000 - 684, 250 = $ 15, 750 Total life of bonds = 15 years Yearly amortized discount = total discount/life = 15, 750/15 = $ 1, 050 Discount amortized through Dec 31, 2022 (6 years) = $ 1.050 times 6 = $ 6, 300 Carrying value. \r\n Par value of bonds retired = $ 140, 000 buying price = $ 104.50 Therefore Total purchase price = 140, 000 times 104.50/100 Recognized gain/(loss) carrying value = 136, 110 (-) purchase price = 146, 300 8, 190 loss (being 20% bonds retired after 6 years (prematurely) at $ 104.50 each)

Par value of bond issued = $ 700, 000 is the prize = $ 97.75 Therefore cash received from sale of bonds at issuance = 700, 000 times 97.75/100 = $ 684, 250 Amount of discount = Par value - cash received = 700, 000 - 684, 250 = $ 15, 750 Total life of bonds = 15 years Yearly amortized discount = total discount/life = 15, 750/15 = $ 1, 050 Discount amortized through Dec 31, 2022 (6 years) = $ 1.050 times 6 = $ 6, 300 Carrying value. \r\n Par value of bonds retired = $ 140, 000 buying price = $ 104.50 Therefore Total purchase price = 140, 000 times 104.50/100 Recognized gain/(loss) carrying value = 136, 110 (-) purchase price = 146, 300 8, 190 loss (being 20% bonds retired after 6 years (prematurely) at $ 104.50 each)