14-5

Question 1

On October I, 2015, Ouelette buys back $1.2 million
worth of bonds for S1.4 million (includes accrued interest).

Answer 1

1. Calculate the interest:

Interest Expense ………………….41,015
($307,614 X .2* X 4/6)
Bonds Payable ……………………….2,985
($22,386 X .2 X 4/6)
Cash ………………………………44,000
($330,000 X .2* X 4/6 )
*$1,200,000 ÷ $6,000,000 = .2

Cash = interest in this case and it will be subtracted from the reaquisition price so we can accurately calculate the LOSS or the GAIN

Question 2

On October I, 2015, Ouelette buys back $1.2 million
worth of bonds for S1.4 million (includes accrued interest).

Answer 2

Reacquisition price
($1,400,000 – $44,000) $1,356,000
Net carrying amount of bonds redeemed:
Par value $1,200,000
Unamortized premium
[(.2 X ($193,896–$20,305–$21,320)] – $2,985
27,469
_ (1,227,469)_
Loss on redemption $ 128,531

Question 3

On October I, 2015, Ouelette buys back $1.2 million
worth of bonds for S1.4 million (includes accrued interest).

Answer 3

dr. Bonds Payable ………………………..1,200,000
* *dr. Bonds Payable ……………………..27,469**
dr. Loss on Redemption of Bonds …….128,531
cr. Cash …………………………………….1,356,000

To write off the unamortized Premium associated with the 20% of the bond