On January 1, 2020, Vaughn Corporation issued $5,480,000 of 10% bonds at 101 due December 31, 2029. Vaughn paid $75,000 inbond issue costs when the bonds were issue to the market. These will be amortized over the life of the bond. The premium on thebonds is also being amortized on a straight-line basis over the 10 years. (Straight-line is not materially different in effect from thepreferable "interest method".)The bonds are callable at 105 (i.e., at 105% of face amount), and on January 2, 2025, Vaughn called one-half of the bonds and retiredthem.Ignoring income taxes, compute the amount of loss, if any, to be recognized by Vaughn as a result of retiring the $2,740,000 of bonds in2025.Loss on redemption $Prepare the journal entry to record the retirement. (If no entry is required, select "No Entry" for the account titles and enter O for theamounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries beforecredit entries.)DateJanuary 2,2025Account Titles and ExplanationBonds PayableLoss on Redemption of BondsDiscount on Bonds PayableCashDebit2740000Credit2877000

Loss of redemption is the difference between carrying or book value of bond and redemption value.…

s when the bonds were issue to the market. These will be amortized ing amortized on a straight-line basis over the 10 years. (Straight-line rest method".) allable at 105 (i.e., at 105% of face amount), and on January 2, 2025,

s when the bonds were issue to the market. These will be amortized ing amortized on a straight-line basis over the 10 years. (Straight-line rest method".) allable at 105 (i.e., at 105% of face amount), and on January 2, 2025,

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable

Section: Chapter Questions

Problem 7C

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On January 1, 2018, Wawatosa Inc. issued 5-year bonds with a face value of $200,000 and a stated interest rate of 12% payable semi-annually on July 1 and January 1. The bonds were sold to yield 10%. Assuming the bonds were sold at 107.732, what is the selling price of the bonds? Were they issued at a discount or a premium?
Chung Inc. issued $50,000 of 3-year bonds on January 1, 2018, with a stated rate of 4% and a market rate of 4%. The bonds paid interest semi-annually on June 30 and Dec. 31. How much money did the company receive when the bonds were issued? The bonds would be quoted at what rate?
On January 1, 2019, Brewster Company issued 2,000 of its 5-year, 1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Brewster uses the effective interest method of amortization. On December 31, 2023, Brewster extinguished the 2,000 bonds early through acquisition in the open market for 1,980,000. On July 1, 2022, Brewster issued 5,000 of its 6-year, 1,000 face value, 10% convertible bonds dated July 1 at an effective annual interest rate (yield) of 12%. The bonds are convertible at the option of the investor into Brewsters common stock at a ratio of 10 shares of common stock for each bond. Brewster uses the effective interest method of amortization. On July 1, 2023, an investor in Brewsters convertible bonds tendered 1,500 bonds for conversion into 15,000 shares of Brewsters common stock, which had a market value of 105 per share at the date of the conversion. Required: 1. Using the information about Brewster, answer the following questions: a. Were the 11% bonds issued at par, at a discount, or at a premium? Why? b. Is the amount of interest expense for the 11% bonds using the effective interest method of amortization higher in the first or second year of the life of the bond issue? Why? 2. Using the information about Brewster, explain the following: a. How is a gain or loss on early extinguishment of debt determined? Does the early extinguishment of the 11% bonds result in a gain or loss? Why? b. How does Brewster report the early extinguishment of the 11% bonds on the 2023 income statement? 3. Based on the information provided about Brewster, answer the following questions: a. Does recording the conversion of the 10% convertible bonds into common stock under the book value method affect net income? What is the rationale for the book value method? b. Does recording the conversion of the 10% convertible bonds into common stock under the market value method affect net income? What is the rationale for the market value method?
On January 1, 2020, Bridgeport Corporation issued $4,920,000 of 10% bonds at 103 due December 31, 2029. Bridgeport paid $79,000 in bond issue costs when the bonds were issue to the market. These will be amortized over the life of the bond. The premium 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 106 (i.e., at 106% of face amount), and on January 2, 2025, Bridgeport called one-half of the bonds and retired them. 4 Ignoring income taxes, compute the amount of loss, if any, to be recognized by Bridgeport as a result of retiring the $2,460,000 of bonds in 2025. Loss on redemption 103320 Prepare the journal entry to record the retirement. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. List…
On January 1, 2020, Bridgeport Corporation issued $5,180,000 of 10% bonds at 102 due December 31, 2029. Bridgeport paid $74,000 in bond issue costs when the bonds were issue to the market. These will be amortized over the life of the bond. The premium 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 106 (i.e., at 106% of face amount), and on January 2, 2025, Bridgeport called one-half of the bonds and retired them.Ignoring income taxes, compute the amount of loss, if any, to be recognized by Bridgeport as a result of retiring the $2,590,000 of bonds in 2025. Loss on redemption $enter the amount of loss on redemption in dollars Prepare the journal entry to record the retirement
On January 1, 2020, Bramble Corporation issued $5,130,000 of 10% bonds at 102 due December 31, 2029. Bramble paid $81,000 in bond issue costs when the bonds were issue to the market. These will be amortized over the life of the bond. The premium 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 104 (i.e., at 104% of face amount), and on January 2, 2025, Bramble called one-half of the bonds and retired them. Ignoring income taxes, compute the amount of loss, if any, to be recognized by Bramble as a result of retiring the $2,565,000 of bonds in 2025. Loss on redemption Prepare the journal entry to record the retirement. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries…
On January 1, 2020, Carla Corporation issued $4, 920, 000 of 10% bonds at 103 due December 31, 2029. Carla paid $79,000 in bond issue costs when the bonds were issue to the market. These will be amortized over the life of the bond. The premium 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 106 (i.e., at 106% of face amount), and on January 2, 2025, Carla called one-half of the bonds and retired them. Ignoring income taxes, compute the amount of loss, if any, to be recognized by Carla as a result of retiring the $ 2,460,000 of bonds in 2025. Loss on redemption $enter the amount of loss on redemption in dollars Prepare the journal entry to record the retirement
On January 2, 2020, Ayayai Corporation issued $2,150,000 of 10% bonds at 98 due December 31, 2029. 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 101 (i.e., at 101% of face value), and on January 2, 2025, Ayayai called $1,290,000 face value of the bonds and redeemed them. Ignoring income taxes, compute the amount of loss, if any, to be recognized by Ayayai as a result of retiring the $1,290,000 of bonds in 2025. (Round answer to O decimal places, e.g. 38,548.) Loss on redemption
On January 1, 2020, Laudon Corporation issued $5,000,000 of 10% bonds at 102 due December 31, 2029. Interest on the bonds is payable annually each December 31. The premium on the bonds is being amortized on a straight-line basis. (Straight-line is not materially different in effect from the preferable “effective interest method”.) The bonds are callable at 105, and on January 2, 2024, Laudon called one-half of the bonds and retired them. REQUIRED (Show any calculations at the bottom of the page for full credit!) a) Prepare the journal entry to record the interest payment of the $5,000,000 bonds on December 31, 2023. b) Prepare the journal entry to record the redemption of half of the bonds on January 2, 2024.
Garland Company received proceeds of $131600 on 10-year, 6% bonds issued on January 1, 2018. The bonds had a face value of $140000, pay interest annually on January 1, and have a call price of 101. Garland uses the straight-line method of amortization.What is the carrying value of the bonds on January 1, 2020?
On January 2, 2020, Tamarisk Corporation issued $1,000,000 of 10% bonds at 96 due December 31, 2029. 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 101 (i.e., at 101% of face value), and on January 2, 2025, Tamarisk called $600,000 face value of the bonds and redeemed them. Ignoring income taxes, compute the amount of loss, if any, to be recognized by Tamarisk as a result of retiring the $600,000 of bonds in 2025. (Round answer to O 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 O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent…
On January 1, 2020, Garland Company purchased bonds with a face amount of P8,000,000 for P7,679,000 to be measured at amortized cost. The stated rate on the bonds is 10% but the bonds are acquired to yield 12%. The bonds mature at the rate of P2,000,000 annually every December 31 and the interest is payable annually also every December 31. The entity uses the effective interest method of amortizing discount. Required: Prepare an amortization schedule. Prepare necessary journal entries.