Question

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

Answer 1

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--

Step-by-step 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