Question

On January 2, 2015, Cullumber Corporation issued $2,250,000 of 10% bonds at 98 due December 31, 2024. Interest on the bonds is payable annually each December 31. The discount on the bonds is also being amortized on a straight-line basis over the 10 years. Straight-line is not materially different in effect from the preferable "interest method.") The bonds are callable at 102 (i.e., at 102% of face amount), and on January 2, 2020, Cullumber called $1,350,000 face amount of the bonds and redeemed them. Ignoring income taxes, compute the amount of loss, if any, to be recognized by Cullumber as a result of retiring the $1,350,000 of bonds in 2020. (Round answer to 0 decimal places, e.g. 38,548.) Loss on redemption $ Prepare the journal entry to record the redemption. (Round answers to O decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter Ofor the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit January 2, 2020 Bonds Payable 1,350,000 Loss on Redemption of Bonds Discount on Bonds Payable cash

Answer 1

Answers

• [1]

A	Face Value	$1,350,000
B = A x 98/100	Issue Price	$1,323,000
C = A - B	Discount on Bonds Payable	$27,000
D = 10 years	No. of interest payment	10
E = C/D	Annual amortisation of discount	$2,700
F = E x 5 years	Discount amortised till 2 Jan 2020 [5 years]	$13,500
G = C - F	Unamortised discount	$13,500
H = A - G	Book Value of Bonds Payable	$1,336,500
I = A x 102%	Cash paid on redepmtion	$1,377,000
J = I - H	Loss on redemption	$40,500 ANSWER

• [2]

Date	Accounts title	Debit	Credit
02-Jan-20	Bonds Payable	$1,350,000
	Loss on redemption	$40,500
	Discount on Bonds payable		$13,500
	Cash		$1,377,000