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30 July, 10:36

Linda Day George Company had bonds outstanding with a maturity value of $300,000. On April 30, 2020, when these bonds had an unamortized discount of $10,000, they were called in at 104. To pay for these bonds, George 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 103 (face value $300,000). Issue costs related to the new bonds were $3,000. Ignoring interest, compute the gain or loss.

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  1. 30 July, 13:38
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    Bonds Payable 300,000 debit

    Loss on redemption - Bonds Payable 22,000 debit

    Cash 312,000 credit

    Discount on Bonds Payable 10,000 credit

    --to record the reemption of old-bonds--

    Explanation:

    call price = 300,000 x 104/100 = 312,000

    Bond payable (net) 300,000 - 10,000 = 290,000

    Loss at redemption 22,000

    We should recognize a loss as we are paying for the bonds 312,000 dollars while they are worth 290,000

    To do the entry, we will write-off the bonds payable and the discount on bonds account. Wer will credit the cash used on the redemption and debit the expense.
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