Exercise 14-12 On January 2, 2012, Shamrock Corporation issued $1,600,000 of 10%
ID: 2335532 • Letter: E
Question
Exercise 14-12 On January 2, 2012, Shamrock Corporation issued $1,600,000 of 10% bonds at 99 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, Shamrock called $960,000 face amount of the bonds and redeemed them. Ignoring income taxes, compute the amount of loss, if any, to be recognized by Shamrock as a result of retiring the $960,000 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
Explanation / Answer
Face value of issue bonds = 1600000
Issue value of bonds = 1600000*99/100 = 1584000
Discount on bonds issue = 1600000-1584000 = 16000
Amortization of discount on bonds per year = 16000/10 = 1600 per year
In 2012 to 2017 amortizated = 1600*5 = 8000
Carrying value of bonds on january 2,2017 = 1584000+8000 = 1592000
Carrying value of redemption bonds = 1592000*960000/1600000 = 955200
Redemption value = 960000*1.02 = 979200
Loss on redemption = 979200-955200 = $24000
Journal entry :
Date account and explanation debit credit Jan 2,2017 Bonds payable 960000 Loss on redemption of bonds 24000 Discount on bonds payable 4800 Cash 979200 (To record redemption of bonds)