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On January 1, 2017, Shay issues $390,000 of 8%, 20-year bonds at a price of 97.00. Six years later, on January 1, 2023, Shay retires 20% of these bonds by buying them on the open market at 104.50. 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.Required:Prepare the journal entry to record the bond retirement at January 1, 2023.

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ayokenny2001

Answer:

Journal entry to record the bond retirement at Jan 1, 2023

Bond payable Dr $78,000

Loss on redemption Dr $5,265

Discount on bonds payable Cr $1,755

Cash. Cr 81,510

Explanation:

Bonds issued at 97%

$390,000 × 97%

= $378,300

Discount difference between cash proceeds and face value

= $390,000 -$378,300

= $11,700

If bonds are discounted using straight line,

$11,700 ÷ 20 year

= $585

At 2022, there is 5 amortization

= $585 × 5

= $2,925

Discount value

= $11,700 - $2,925

= $8,775

Carrying value

= $390,000 - $8,775

= $381,225

Therefore, $390,000 bonds payable × 20% × 104.5%

= $81,510

Carrying book value of 20%

$381,225 × 20%

= $76,245

Loss on redemption

= $81,510 - $76,245

= $5,265

Therefore,

20% of the face value

= $390,000 × 20%

= $78,000

20% of the discount

= $8,775 × 20%

= $1,755

Loss on redemption = $5,265

Cash disbursement = $81,510

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