| Posted: 26 May 2009 at 18:48 | IP Logged
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I am a little confused about this question. I was able to play with the numbers and get the answer, but I don't really get it conceptually. Could someone tell me what the journal entries would be to arrive at the answer???
On June 2, 1988, Tory issued $500,000 of 10%, 15-yr bonds at par. Interest is payable semiannually on June 1 and December 1. Bond issue costs are $6,000. On Jun 2, 1993, Tory retired half the bonds at 98. What is the net amount that Tory should use in computing the gain or loss on retirement of debt?
Solution: 248,000
The amount used to compute a gain or loss on bond retirement is the carrying amount of the bond and the pro rata portion of bond issue cost.
Original carrying amount $500,000
Bond issue cost ($6,000 x 10/15) (4,000)
Net carrying amount 6-2-93 496,000
Portion retired x 50%
Amount used to compute gain/loss $248,000
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I was thinking the initial entry should be:
Dr. Cash 494,000
Dr. Bond Issue Cost (asset) 6,000
Cr. Bonds Payable 500,000
So then throughout the 5 years, you would amortize (expense) $2,000 worth of the bond issue costs.
Dr. Bond Issue Cost Expense xx
Cr. Bond Issue Cost (Asset) xx
So then when you retire the bonds, what would be the journal entry?
And were the above entries correct? I'm pretty confused - thanks for any help.
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Topic: Bond Issue Costs
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