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26 April, 15:41

Ivanhoe Company had bonds outstanding with a maturity value of $294,000. On April 30, 2017, when these bonds had an unamortized discount of $9,000, they were called in at 104. To pay for these bonds, Ivanhoe 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 102 (face value $294,000). Ignoring interest, compute the gain or loss. Loss on redemption $ Ignoring interest, record this refunding transaction

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  1. 26 April, 17:05
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    A)

    bonds payable 294,000 debit

    loss on redemption 20, 760‬ debit

    cash 305,760 credit

    discount on bonds payable 9,000 credit

    --to record call of bonds---

    B)

    cash 299.880‬ debit

    bonds payable 294,000 credit

    premium on bonds 5,880 credit

    - - to record issuance of new bonds--

    Explanation:

    A)

    call value

    face value: 294,000

    call at 104: 294,000 x 104/100 = 305.760‬

    carrying value:

    bonds payable 294,000

    discount on bonds (9,000)

    carrying value 285,000

    the loss on redemption will be the difference for call value and carrying value:

    305,760 - 285,000 = 20,760‬

    B)

    the new bods will have a face value of 294,000 and were issued at 102

    294,000 x 102/100 = 299.880‬

    the diffrence will be a premium for 5,880
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