Loose Leaf for Fundamental Accounting Principles
Loose Leaf for Fundamental Accounting Principles
23rd Edition
ISBN: 9781259687709
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
Question
Book Icon
Chapter 14, Problem 9E
To determine

Issue of bond at discount:

When the coupon rate or contract rate of a bond is lower than the market interest rate, the bond is being issued at discount. The selling price of the bond will be lower than the face value of the bond under issue of bond at discount.

To determine:

1. How much does the company receive when it issues the bonds on January 1, 2017?

2. Compute the amount of discount on the issuance.

3. How much amortization is recorded on the bonds for the entire period from January 1, 2017, through December 31, 2022?

4. What is the carrying value of the bonds as on December 31, 2022 and what is carrying value of the 20% soon-to-be retired bonds on this same date?

5. How much did the company pay on January 1, 2023, to purchase the bonds that it retired?

6. What is the amount of the recorded gain or loss from retiring the bonds?

7. Prepare the journal entry to record the bonds retirement at January 1, 2023.

Expert Solution & Answer
Check Mark

Answer to Problem 9E

Solution:

1. The company received cash proceeds of $684,250 on the issue on bonds.

2. The amount of discount on the bonds is $15,750.

3. $6,300 of discount amortization is recorded on the bonds as December 31, 2022.

4. On December 31, 2022, the carrying value as of the bonds as of the close of business is $690,550 and carrying value of 20% soon-to-be retired bonds is $138,110.

5. The company paid a sum of $146,300 to purchase the bonds.

6. Shay Company incurred a loss of $8,190 on the retirement of bonds payable.

7.

Date General journal Debit Credit
2023      
Jan. 1 Bonds Payable $140,000  
  Loss on Retirement of Bonds Payable $8,190  
  Discount on Bonds Payable   $1,890
  Cash   $146,300

Explanation of Solution

Explanation:

1.

Computation of Cash proceeds from bonds issuance Cash Proceeds from Bonds Issuance= $700,000 X 97.75%                                                           = $684,250

2.

Discount on Bonds Payable= Par Value of bonds payable  Issue Price of bonds payable                                             = $700,000  $684,250                                             = $15,750

3. Computation of discount to be amortize from January 1, 2017 to December 31, 2022

Discount Amortization = 40% of total discount on bonds payable                                     = 0.40 X 15,750                                     = $6,300*January 1, 2017 to December 31, 2022 consist of six years which is 40% of bonds payable term of 15 years.

4.

Carrying value of the bonds as of the close of business on December 31, 2022           = Par Value of bonds payable  Unamortized Discount      = $700,000  $9,450      = $690,550 Carrying value of the 20% soontobe retired Bonds        = 20% of Par Value of bonds payable  20% of Unamortized Discount      = $140,000  $1,890      = $138,110

5. Computation of purchasing price of bonds retired

= 20% of Par value of bonds payable X Purchasing Price         = $140,000 X 104.50%         = $146,300

6. Gain or Loss on Retiring of Bonds

Gain or loss on retirement of bonds payable = Carrying Value  Purchase Price                                                                       = $138,110  $146,300                                                                       = $8,190

7.

When carrying value of the bond is less the purchasing price, there is a loss on retirement of bonds payable and if the carrying value of bonds is more than the purchasing price, there is a gain on retirement of bonds payable.

Conclusion

Conclusion:

Shay Company issued $700,000 10%, 15 year bonds at $684,250 with a discount of $15,750 and retired 20% of it for $146,300 and incurred a loss of $8,190

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 14 Solutions

Loose Leaf for Fundamental Accounting Principles

Ch. 14 - Prob. 11DQCh. 14 - Prob. 12DQCh. 14 - Prob. 13DQCh. 14 - Prob. 14DQCh. 14 - Prob. 15DQCh. 14 - Prob. 16DQCh. 14 - Prob. 17DQCh. 14 - Prob. 18DQCh. 14 - Prob. 19DQCh. 14 - Prob. 20DQCh. 14 - Prob. 1QSCh. 14 - Prob. 2QSCh. 14 - Prob. 3QSCh. 14 - Prob. 4QSCh. 14 - Prob. 5QSCh. 14 - Prob. 6QSCh. 14 - Prob. 7QSCh. 14 - Prob. 8QSCh. 14 - Prob. 9QSCh. 14 - Prob. 10QSCh. 14 - Prob. 11QSCh. 14 - Prob. 12QSCh. 14 - Prob. 13QSCh. 14 - Prob. 14QSCh. 14 - Prob. 15QSCh. 14 - Prob. 16QSCh. 14 - Prob. 17QSCh. 14 - Prob. 18QSCh. 14 - Prob. 19QSCh. 14 - Prob. 20QSCh. 14 - Prob. 1ECh. 14 - Prob. 2ECh. 14 - Prob. 3ECh. 14 - Prob. 4ECh. 14 - Prob. 5ECh. 14 - Prob. 6ECh. 14 - Prob. 7ECh. 14 - Prob. 8ECh. 14 - Prob. 9ECh. 14 - Prob. 10ECh. 14 - Prob. 11ECh. 14 - Prob. 12ECh. 14 - Prob. 13ECh. 14 - Prob. 14ECh. 14 - Prob. 15ECh. 14 - Prob. 16ECh. 14 - Prob. 17ECh. 14 - Prob. 18ECh. 14 - Prob. 19ECh. 14 - Prob. 20ECh. 14 - Prob. 1APSACh. 14 - Prob. 2APSACh. 14 - Prob. 3APSACh. 14 - Prob. 4APSACh. 14 - Prob. 5APSACh. 14 - Prob. 6APSACh. 14 - Prob. 7APSACh. 14 - Prob. 8APSACh. 14 - Prob. 9APSACh. 14 - Prob. 10APSACh. 14 - Prob. 11APSACh. 14 - Prob. 1BPSBCh. 14 - Prob. 2BPSBCh. 14 - Prob. 3BPSBCh. 14 - Prob. 4BPSBCh. 14 - Prob. 5BPSBCh. 14 - Prob. 6BPSBCh. 14 - Prob. 7BPSBCh. 14 - Prob. 8BPSBCh. 14 - Prob. 9BPSBCh. 14 - Prob. 10BPSBCh. 14 - Problem 14-11EC Capital lease accounting C3 Braun...Ch. 14 - Prob. 14SPCh. 14 - Prob. 1BTNCh. 14 - Prob. 2BTNCh. 14 - Prob. 3BTNCh. 14 - Prob. 4BTNCh. 14 - Prob. 5BTNCh. 14 - Prob. 6BTNCh. 14 - Prob. 7BTNCh. 14 - Prob. 8BTNCh. 14 - Prob. 9BTN
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education