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Chapter 10: Q9QS (page 474)

On July 1, 2017, Advocate Company exercises an \(8,000 call option (plus par value) on its outstanding bonds that have a carrying value of \)416,000 and par value of $400,000. The company exercises the call option after the semiannual interest is paid on June 30, 2017. Record the entry to retire the bonds

Short Answer

Expert verified

The gain on bond retirement is $8,000

Step by step solution

01

Meaning of Bond Retirement

When a business organization repurchases the bonds from the bondholders previously issued, it is termed a bond retirement

02

Step 2:Journal entry

Date	Account and explanation	Debit ($)	Credit ($)
July 01, 2017	Bond Payable	400,000
	Premium on Bonds Payable	16,000
	Gain on Bond Retirement		8,000
	Cash		408,000
	(To Record retirement of bonds before maturity)

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Most popular questions from this chapter

Rogers Company signs a five-year capital lease with Packer Company for office equipment. The annual year-end lease payment is \(10,000, and the interest rate is 8%.

Required

Compute the present value of Rogers’s five-year lease payments.
Prepare the journal entry to record Rogers’s capital lease at its inception.
Complete a lease payment schedule for the five years of the lease with the following headings. Assume that the beginning balance of the lease liability (present value of lease payments) is \)39,927. (Hint: To find the amount allocated to interest in year 1, multiply the interest rate by the beginning-of-year lease liability. The amount of the annual lease payment not allocated to interest is allocated to principal. Reduce the lease liability by the amount allocated to principal to update the lease liability at each year-end.)

Period ending date	Beginning balance of lease liability	Interest on lease liability	Reduction on lease liability	Cash lease payment	Ending balance of lease liability

4.Use straight-line depreciation and prepare the journal entry to depreciate the leased asset at the end of year 1. Assume zero salvage value and a five-year life for the office equipment.

Question: Describe the debt-to-equity ratio and explain how creditors and owners would use this ratio to evaluate a company’s risk.

QuestionKey figures forAppleandGooglefollow.

Total assets . \(290,479 \)231,839 \(147,461 \)129,187

Total liabilities . 171,124 120,292 27,130 25,327

Total equity . 119,355 111,547 120,331 103,860

Required

1.Compute the debt-to-equity ratios for Apple and Google for both the current year and the prior year.

2.Use the ratios you computed in part 1 to determine which company’s financing structure is least risky.Assume an industry average of 0.44 for debt-to-equity.

On January 1, 2017, Boston Enterprises issues bonds that have a $3,400,000 par value, mature in 20 years, and pay 9% interest semiannually on June 30 and December 31. The bonds are sold at par.

1. How much interest will Boston pay (in cash) to the bondholders every six months?

2. Prepare journal entries to record (a) the issuance of bonds on January 1, 2017; (b) the first interest payment on June 30, 2017; and (c) the second interest payment on December 31, 2017.

3. Prepare the journal entry for issuance assuming the bonds are issued at (a) 98 and (b) 102.

Question: Compare and contrast an operating lease with a capital Lease

See all solutions

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