Please help, and show work if possible :) On, January 1, 2015, Glover Corporatio
ID: 2421051 • Letter: P
Question
Please help, and show work if possible :)
On, January 1, 2015, Glover Corporation issued $2,790,000 of 5-year, 7% bonds at 98. The bonds pay interest annually on January 1. By January 1, 2017, the market rate of interest for bonds of risk similar to those of Glover Corporation had risen. As a result, the market value of these bonds was $2,080,000 on January 1, 2017—below their carrying value. Joanna Glover, president of the company, suggests repurchasing all of these bonds in the open market at the $2,080,000 price. To do so, the company will have to issue $2,080,000 (face value) of new 10-year, 12% bonds at par. The president asks you, as controller, “What is the feasibility of my proposed repurchase plan?”
Answer the following.
What is the carrying value of the outstanding Glover Corporation 5-year bonds on January 1, 2017? (Assume straight-line amortization.)
Prepare the journal entry to redeem the 5-year bonds on January 1, 2017. Prepare the journal entry to issue the new 10-year bonds
1.
(To record redemption of bonds)
2.
(To record sale of bonds at par)
Prepare the journal entry to redeem the 5-year bonds on January 1, 2017. Prepare the journal entry to issue the new 10-year bonds
1.
(To record redemption of bonds)
2.
(To record sale of bonds at par)
Explanation / Answer
1.
2.
Carrying value of the bond = $2790000-33480 = 2756520.
Date Account title and Explanation Debit Credit Jan 1,2017 7% Bonds payable $ 2,790,000 Cash $ 2,080,000 Discount of bonds
($55,800 - $22,320) $ 33,480 Gain on retirement of bonds
($2,756,520 - $2,080,000) $ 676,520 (To record the redemption of bonds)