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2 March, 04:56

Three years ago American Insulation Corporation issued 10%, $830,000, 10-year bonds for $785,000. American Insulation exercised its call privilege and retired the bonds for $820,000. The corporation uses the straight-line method to determine interest. Prepare the journal entry to record the call of the bonds.

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  1. 2 March, 05:25
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    Discount on bonds payable = $830,000 - $785,000 = $45,000

    Subtract discount amount amortized for 3 years - 45,000/10 * 3

    So 45,000 - 14,500 = 31,500

    Par value of the bonds $830,000

    Less: Discount on bonds payable $31,500

    Book value of the bonds on the date of call of the bonds $798,500

    Less: Amount paid to reacquire the bonds $820,000

    Loss on redemption of bonds ($21,500)

    Based on the calculations, now we can journalize the entries:

    Dr Bonds Payable 830,000

    Dr Loss early extinguishment 21,500

    Cr Discount on Bonds Payable 31,500

    Cr Cash 820,000
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