Respuesta :
on june 2, year 1, tory, inc. issued $500,000 of 10%, 15-year bonds at par. interest is payable semiannually on june 1 and december 1. bond issue costs were $6,000. on june 2, year 6, tory retired half of the bonds at 98. what is the net amount that tory should use in computing the gain or loss on the retirement of debt:
The question asks for the book value amount to be compared to the price paid for the bonds retired when the gain or loss on retirement is computed.
The net book value includes the unamortized bond issue costs. The amount of unamortized issue costs relating to the portion of the bond issue retired increases the loss or decreases the gain because it represents the value of an asset that can provide no further benefit. The remaining portion of the bond term for the portion of the bond issue retired is the period for which the bond issue costs can no longer provide benefit.
Number of semiannual periods in bond term: 15(2) = 30
Number of semiannual periods remaining at 6/2/05 = 10(2) = 20
Remaining unamortized bond issue costs: $6,000(20/30) = $4,000
Net amount to compare to price paid for bonds, to determine gain or loss on retirement, on one-half the bond issue: (1/2)($500,000 - $4,000) = $248,000. A journal entry recording the retirement of one-half the issue helps show why $248,000 is the correct answer.
Dr:Bonds payable 250,000
Cr:Bond issue costs 2,000
Cr:Cash .98($250,000) 245,000
Cr:Gain 3,000
The gain equals the net value of two accounts removed from the books ($248,000) less the amount paid to retire the bonds.
What is unamortized bond?
Unamortized bond premium is the difference, less interest, between the bond's face value and the higher price at which it was sold. The portion of the total bond price that has not yet been amortized by the issuer—i.e., written off incrementally against expenses in the future—is known as the unamortized bond premium. Amortization is an accounting method used over a certain period of time to gradually reduce the book value of a loan or other intangible asset.
Therefore,
The question asks for the book value amount to be compared to the price paid for the bonds retired when the gain or loss on retirement is computed.
The net book value includes the unamortized bond issue costs. The amount of unamortized issue costs relating to the portion of the bond issue retired increases the loss or decreases the gain because it represents the value of an asset that can provide no further benefit. The remaining portion of the bond term for the portion of the bond issue retired is the period for which the bond issue costs can no longer provide benefit.
Number of semiannual periods in bond term: 15(2) = 30
Number of semiannual periods remaining at 6/2/05 = 10(2) = 20
Remaining unamortized bond issue costs: $6,000(20/30) = $4,000
Net amount to compare to price paid for bonds, to determine gain or loss on retirement, on one-half the bond issue: (1/2)($500,000 - $4,000) = $248,000. A journal entry recording the retirement of one-half the issue helps show why $248,000 is the correct answer.
Dr:Bonds payable 250,000
Cr:Bond issue costs 2,000
Cr:Cash .98($250,000) 245,000
Cr:Gain 3,000
The gain equals the net value of two accounts removed from the books ($248,000) less the amount paid to retire the bonds.
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