Handout Chapter 14 Early Extinguishment - solutions

Handout Chapter 14 Early Extinguishment - solutions -...

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Handout Chapter 14 – with solutions BUSACC 1205 Early Extinguishment of Debt Examples Example 1 Three years ago American Insulation Corp issues 10%, $800,000, 10 year bonds for $770,000. Debt issue costs were $3,000. American Insulation exercised its call privilege and retired the bonds for $790,000. The corporation uses the straight line method to amortize discount and premiums and to amortize debt issue costs. Prepare the journal entry to record the call of the bonds. Solution Bonds payable 800,000 Loss on retirement 13,100 Bond Issue Costs 2,100 Discount on Bonds 21,000 Cash 790,000 Example 2 The long term liability section of Eastern Post Corporation’s balance sheet as of December 31, 2005
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Unformatted text preview: included 10% bonds with a face amount of $40 million and a remaining unamortized premium of $6 million. On January 1, 2006, Eastern Post retired some of the bonds before their scheduled maturity. Prepare the journal entry by Eastern Post to record the early retirement of the bonds under each of the independent circumstances. 1. Eastern Post called half the bonds at the call price of 102 (102% of face amount.) 2. Eastern Post repurchased $10 million of the bonds on the open market at their market price of $10.5 million. Solution #1 Bonds Payable 20M Premium on Bonds 3M Cash 20.4M Gain 2.6M Solution #2 Bonds Payable 10.0M Premium on Bonds 1.5M Cash 10.5M Gain 1.0M...
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