Jason Day Company had bonds outstanding with a maturity value of $329,000. On April 30, 2020, when these bonds had an unamortized discount of $10,000, they were called in at 106. To pay for these bonds, Cheyenne had issued other bonds a month earlier bearing a lower interest rate. The newly issued bonds had a life of 10 years. The new bonds were issued at 101 (face value $329,000).

Required:

1. Ignoring interest, compute the gain or loss and record this refunding transaction.

(AICPA adapted)

Question

Business

Nicolas

27 August, 18:56

Jason Day Company had bonds outstanding with a maturity value of $329,000. On April 30, 2020, when these bonds had an unamortized discount of $10,000, they were called in at 106. To pay for these bonds, Cheyenne had issued other bonds a month earlier bearing a lower interest rate. The newly issued bonds had a life of 10 years. The new bonds were issued at 101 (face value $329,000).

Required:

1. Ignoring interest, compute the gain or loss and record this refunding transaction.

(AICPA adapted)

+2

Answers (1)

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Patience Payne · Answer 1

Loss on redemption of bonds = $29,740

Refunding transaction journal entry is given below.

Explanation:

Calculation of Loss on Redemption of Bonds:

Reacquisition cost ($329,000 * 106%) = $348,740

Add: unamortized discount = $10,000

Less: face value of the bonds = $329,000

Loss on redemption of bonds = $29,740

Journal entries required:To record the redemption of bonds payable:

Debit: Bonds payable $329,000

Debit: Loss on redemption of bonds $29,740

Credit: Discount on bonds $10,000

Credit: Cash $348,740

To record issue of bonds payable:

Debit: Cash ($329,000 * 101%) = $332,290

Credit: Premium on bonds payable $3,290

Credit: Bonds payable $329,000