Question

January 1, 2018: Excel Corporation issued 15 year, 8% bonds with a face value of $1,675,000. The bonds were sold to yield 9%. Interest is payable semi-annually on January 1 and July 1. On January 1, 2024, Excel Corporation paid the interest payment due on that date and then called all the bonds at 103.5.

What is the amount of gain or loss on this call? Prepare all journal entries for the call date, January 1, 2024.

Answer 1

Solution:

Computation of bond Issue price
Table values are based on:
n=	30
i=	4.50%
Cash flow	Table Value	Amount	Present Value
Par (Maturity) Value	0.267	$1,675,000.00	$447,225
Interest (Annuity)	16.289	$67,000.00	$1,091,356
Price of bonds			$1,538,581

Bond Amortization Schedule - Effective interest method
Date	Cash Paid	Interest Expense	Discount Amortized	Unamortized Discount	Carrying Value
1-Jan-18				$136,419	$1,538,581
1-Jul-18	$67,000	$69,236	$2,236	$134,183	$1,540,817
1-Jan-19	$67,000	$69,337	$2,337	$131,846	$1,543,154
1-Jul-19	$67,000	$69,442	$2,442	$129,404	$1,545,596
1-Jan-20	$67,000	$69,552	$2,552	$126,852	$1,548,148
1-Jul-20	$67,000	$69,667	$2,667	$124,186	$1,550,814
1-Jan-21	$67,000	$69,787	$2,787	$121,399	$1,553,601
1-Jul-21	$67,000	$69,912	$2,912	$118,487	$1,556,513
1-Jan-22	$67,000	$70,043	$3,043	$115,444	$1,559,556
1-Jul-22	$67,000	$70,180	$3,180	$112,264	$1,562,736
1-Jan-23	$67,000	$70,323	$3,323	$108,941	$1,566,059
1-Jul-23	$67,000	$70,473	$3,473	$105,468	$1,569,532
1-Jan-24	$67,000	$70,629	$3,629	$101,839	$1,573,161

Carrying value of bond on 01.01.2024 = $1,573,161

Call value of bond = $1,675,000*103.5% = $1,733,625

Loss on call of bond = $1,573,161 - $1,733,625 = $160,464

Journal Entries
Date	Particulars	Debit	Credit
1-Jan-24	Interes payable Dr	$67,000.00
	To Cash		$67,000.00
	(To record interest payment)
1-Jan-24	Bond payable Dr	$1,675,000.00
	Loss on retirement of bond Dr	$160,464.00
	To Cash		$1,733,625.00
	To Discount on issue of bond		$101,839.00
	(To record early retirement of bonds)