# 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

Solution

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

B.

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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