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On January 1, 2017, Shay issues $330,000 of 12%, 15-year bonds at a price of 97.00. Six years later, on January 1, 2023, Shay retires 20% of these bonds by buying them on the open market at 104.50. All interest is accounted for and paid through December 31, 2022, the day before the purchase. The straight-line method is used to amortize any bond discount. 7. Prepare the journal entry to record the bond retirement at January 1, 2023.

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Answer and Explanation:

As per the data given in the question,  Journal entries are as follows:

Jan 1  

         Bonds payable A/C Dr. $66,000

          Loss on bonds' redemption A/c Dr. $4,158

          To Discount on bonds payable A/c $1,188

                         ($5,940*20%)

          To Cash A/c $68,970

                    ($66,000*104.5%)

          (To record retirements of bonds before maturity)

Computation

Discount on bonds = $330,000 × 3% = $9,900

Amortized bond discount = $9,900 ÷ 15 × 6  

= $3,960

Unamortized bond discount = $9,900 - $3,960  

= $5,940

Face value of bonds retired = $330,000 × 20%

= $66,000

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