Early retirement of bonds Refer to P11.4. Ajax Steel issued A150 million of 6% bonds on 1 January x3 at a price of 101. Two years later, on 1 January x5, Ajax decides to retire the bonds. The company has a large cash balance and management decide to use part of it to reduce the company’s debt. At this time, the market interest rate is 7.15% and Ajax’s 6% bonds trade at a price of 97.

Required

(a) What is the market value of Ajax’s 6% bonds on 1 January x5?

(b) Assume Ajax Steel is able to buy back all the bonds at their market value on that day. Show the effect of the repurchase on the company’s accounts. Use journal entries or the balance sheet equation. Ignore transaction costs.
Check figure:

(b) Carrying amount A150.9 million.AppenedixLO1