Answered Essay: On January 2, 2012, Novak Corporation issued $2,100,000 of 10% bonds at 97 due December 31, 2021. Interest on the bonds is payable annually each Dece

On January 2, 2012, Novak Corporation issued $2,100,000 of 10% bonds at 97 due December 31, 2021. 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, 2017, Novak called $1,260,000 face amount of the bonds and redeemed them.

Ignoring income taxes, compute the amount of loss, if any, to be recognized by Novak as a result of retiring the $1,260,000 of bonds in 2017. (Round answer to 0 decimal places, e.g. 38,548.)

Loss on redemption $

Prepare the journal entry to record the redemption. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select “No Entry” for the account titles and enter 0 for 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, 2017

Expert Answer



Unamortised discount:

=$1,260,000×3%=37,800/10=$3,780×5 years remaining=$18,900

Reacquisition price(1260,000×102%)=$1,285,200

Less carrying value(1,260,000-18,900)=$1,241,100

Loss on redemption=$44,100


Journal entry

Date account titles Debit Credit
Jan 2,2017 Bonds payable $1,260,000
Loss on redemption of Bonds $44,100
Discount on issue of Bonds $18,900
Cash $1,285,200
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