On April 1, 2006 a company issued $500,000, 9% bonds for $537,868 including accrued interest. Interest is payable annually on Jan 1, and bonds mature on Jan 1, 2016

On July 1, 2008 a company retired $150,000 of the bonds at 102 plus accrued interest. The company uses straight-line amortization.

On April 1, 2006 I computed the interest for Jan 1 - April 1 2006 as $11,250 and I computed the Premium on Bonds Payable at $26,618.

Question: How do compute the retirement of the bonds? I cannot figure out what to do next. Please help: Thanks!!!

pready

Here is what I did, though I am not sure if it is correct.

(A) Cash Received $537,868
Less:
Face Amt of Bonds $500,000
Acrued Interest
(500,000*9%*3/12) 11,250 511,250
Premium on Bonds payable $26,618

Journal Entries
Date Account Name Dr Cr
1-Apr-06 Cash 537,868
Bonds Payable 500,000
Interest Expense 11,250
Premium on Bonds Payable 26,618

(B) Face Amt of Bonds Retired $150,000
Reacquisition Price($150,000*102%) $153,000
Acrued Interest($150,000*9%*6/12) $6,750
Amortized Premium $4,778
($26,618/117 Months Outstanding *21 Months Used)
Unamortized Premium on Full amount of Bonds $21,840
Fraction of Bonds ($150,000/$500,000) 0.3
Unamortized Premium on $150,000 Bonds $6,552
($21,840 * 0.3)

Reacquistion Price of Bands Payable $153,000
Acrued Interest 6,750
Cash Paid $159,750
Less:
Bonds Payable $150,000
Premium on Bonds payable 6,552 156,552
Loss on Redemption $3,198

Journal Entries
Date Account Name Dr Cr
1-Jul-08 Bonds Payable 150,000
Premium on Bonds payable 6,552
Loss on Redemption 3,198
Cash 159,750


Does the computations look right???
Sorry the format changes when I post this!!!

luai

plzzzzzzzz from where did you get this question cuz this question in my midterm exam

email me

morgaine300

luai, we aren't here to do your exams for you! (Also, didn't anyone ever tell you not to just put your email up some place public like this.)

If you both have the same question, it likely could have come from the test bank for the textbook. In which case, it makes me wonder if pready's question is also from an exam???

Does anyone have a sense of honor anymore?

luai

thx for your comment but from where i can get this test banks?

morgaine300

Only the instructors can get the test banks.