Chapter 14 - selling and repurchasing Bonds

Question 1

When you SELL a bond between dates

Answer 1

dr. Cash (if they say it’s sold plus accrued interest - calculate the accrued interst between dates)

($700,000 X 105%) + ($700,000 X 12% X 4/12) = CASH recieved

cr. Bonds payable = Cash received - accrued interest (so you record the Bond at the correct value)

**cr. Interest expense! **($700,000 X 12% X 4/12)

At year-end this credit goes against your entry for the full year

Question 2

When you REPURCHASE a Bond

Answer 2

1. Calculate the carrying amount of the Bond = par value +/- unamortized premium/ discount. Add accrued interest if the problem says that are repurchased at x.x(103) plus accrued interest

Cr. CASH (the amount you pay + accrued interest if that’s what the problems says)

2. have a first entry updating the disocunt

Question 3

Bonds issued between interest payment dates

December 31

dr. Interest Expense ($700,000 X 12%)……….84,000
cr. Interest Payable ……………………….84,000

dr. Bonds Payable ………………………………….2,414
cr. nterest Expense ……………………….2,414
($35,000 X 8/116* = $2,414)
*(12 X 10) – 4 = 116

This can be done in one entry

Answer 3

*The purchaser will pay for the interest that has
accrued from the interest payment date to
the date of purchase.
*The purchaser will then receive the full interest
payment for the entire interest period when
the interest is due to be paid.
*If there is a discount or a premium then the
discount or premium is amortized from the
date of purchase to maturity date. (that’s why the example when we had 120 months, we subtract 4)

Question 4

JE

Bonds issued between interest payment dates

Answer 4

On March 1, 2009 CANCO Inc. issues a 10 year
$100,000 bond dated January 1, 2009 for 102
with a stated rated of 10% paid semi - annually
on July 1 and December 31.
Dr Cash 103,667
Cr Bond Premium 2,000
Cr Interest expense 1,667
Cr Bonds Payable 100,000
*103,667=(100,000 X 1.02)+100,000 X 10% X 2/12 *
1,667=100,000 X 10% X 2/12

Question 5

Debt Retirement Debt Retirement

Answer 5

Reacquisition price also includes the costs
related to retirement.

Question 6

Steps to follow in Bond Steps to follow in Bond
Retirement

Answer 6

1. Update the carrying value of the bonds
   dr. Interest expense
   cr/dr Amortization of discount or premium
   Related bond issue costs (?)
2. Calculate the gain or loss.
3. Remove the liability accounts and record
   gain or loss
4. Record the proceeds, other resources, or
   issuance of new debt