Bond Redemption St. Wyncomb Co. issued 10 percent, $420,000 face value bonds wit
ID: 2541709 • Letter: B
Question
Bond Redemption
St. Wyncomb Co. issued 10 percent, $420,000 face value bonds with a 20 year maturity at 96 on Jnuary 1, 2002. The bonds are callable at 104 after one year. St. Wyncomb Co. decided to call the bonds after interest rates dropped on December 31. 2004. To finance the retirement, St. Wyncomb issued 8 percent, $440,000 face value bonds with a 20 year maturity at 102 on December 31, 2004.
1. Prepare an amortization schedule for the first three years for the original bonds, and the first two years of the new bonds.
2. Prepare the journal entries to recorn the following.
a. Issue of original bonds.
b. Annual interest payment in the year of the redemption, 2004 for the original bonds.
c. Isue of new bonds.
d. Redemption of original bonds.
e. First annual interest payment for the new bonds.
3. Prepare a T-Account for the dincount accond for the original bonds.
****Please show work so I can follow along****
Explanation / Answer
Answer 1. Discount Amortization Schedule Date Interest Paid - $420,000 X 10% Interest Expense Discount Amortization Unamortized Discount Bonds Carrying Amount A B C = 16,800 / 20 D = D - C E = $420,000 - D 1-Jan-02 - - - 16,800.00 403,200.00 31-Dec-02 42,000.00 42,840.00 840.00 15,960.00 404,040.00 31-Dec-03 42,000.00 42,840.00 840.00 15,120.00 404,880.00 31-Dec-04 42,000.00 42,840.00 840.00 14,280.00 405,720.00 Premium Amortization Schedule Date Interest Paid - $440,000 X 8% Interest Expense - Preceeding Bond Carrying Value Premium Amortization Unamortized Premium Bonds Carrying Amount A B = A - C C = $8,800 / 20 D = D - C E = $440,000 + D 31-Dec-04 - - - 8,800.00 448,800.00 31-Dec-05 6,500.00 6,060.00 440.00 8,360.00 448,360.00 31-Dec-06 6,500.00 6,060.00 440.00 7,920.00 447,920.00 Answer 2. Journal Entry S.no. Date Particulars Dr. Amt. Cr. Amt. a. 1-Jan-02 Cash 403,200.00 Discount on Issue of Bonds 16,800.00 Bonds Payable 420,000.00 (Record the issue of Bonds) b. 31-Dec-04 Interest Expense 42,840.00 Cash 42,000.00 Discount on Issue of Bonds 840.00 (Record the interest paid) c. 31-Dec-04 Cash 448,800.00 Bonds Payable 440,000.00 Premium on Issue of Bonds 8,800.00 (record the issue of Bonds) d. 31-Dec-04 Bonds Payable 405,720.00 Gain on Redemption of Bonds 28,560.00 Cash 420,000.00 Discount on issue of Bonds 14,280.00 (record the redemption of bonds) e. 31-Dec-05 Interest Expense 6,060.00 Premium on Issue of Bonds 440.00 Cash 6,500.00 (Record the interest paid) Answer 3. Discount on Issue of Bonds 1-Jan-02 16,800.00 840.00 31-Dec-02 840.00 31-Dec-03 840.00 31-Dec-04 14,280.00 31-Dec-04 End. Bal. -