Question

3. The Scotia Company issues $100,000, 10% bonds at 102 on April 1, 2020. The bonds are dated January 1, 2020 and mature ten years from that date. Straight-line amortization is used. Interest is paid annually each December 31. Compute the bond carrying value as of December 31, 2027. Answer $_______________ 4. At December 31, 2020, the following balances existed for AAA Corporation: Bonds Payable (4%) $500,000 Discount on Bonds Payable 10,000 The bonds mature on 12/31/27. Straight-line amortization is used. If 30% of the bonds are retired at 105 on January 1, 2024, what is the gain or loss on early extinguishment? Answer $_______________ Required: Compute the answer for each of the four problems. Show supporting computation. No need to show questions.

Answer 1

Solution: $100,400

Working:

Date	Bonds Payable Bal.	Premium paid	Beginning BV	Interest	Premium	Interest	Premium on	Closing
	(a)	(b)	(c ) = (a) + (b)	(a) * 10%)	amortization	payable	bonds payable	Book value
01-Jan-20	100,000	2,000	102,000	0	0	0	2,000	102,000
31-Dec-20	100,000	2,000	102,000	10,000	200	9,800	1,800	101,800
31-Dec-21	100,000	1,800	101,800	10,000	200	9,800	1,600	101,600
31-Dec-22	100,000	1,600	101,600	10,000	200	9,800	1,400	101,400
31-Dec-23	100,000	1,400	101,400	10,000	200	9,800	1,200	101,200
31-Dec-24	100,000	1,200	101,200	10,000	200	9,800	1,000	101,000
31-Dec-25	100,000	1,000	101,000	10,000	200	9,800	800	100,800
31-Dec-26	100,000	800	100,800	10,000	200	9,800	600	100,600
31-Dec-27	100,000	600	100,600	10,000	200	9,800	400	100,400

As per policy we have to answer first question