Exercise 3: Entry for Retirement of Bond; Bond Issue Costs On January 1, 20X0, Boogie Corporation issued P1,500,000 of 10% bonds at 97 due December 31, 20x9. Legal and other costs of P24,000 were incurred in connection with the issue. Interest of the bonds is payable annually each December 31. The P24,000 issue costs are being deferred and amortized on a straight-line basis over the 10-year term of the bonds. The discount on the bonds is also being amortized on a straight-line basis over the 10 years. (Straight-line is not materially different in effect from the preferable "interest method") The bonds are callable at 101 (i.e., at 101% of face amount), and on January 2, 20x5, Boogie called P900,000 face amount of the bonds and retired them. Required: Ignoring income taxes, compute the amount of loss, if any, to be recognized by Boogie as a result of retiring the P900,000 of bonds in 20X7 and prepare the journal entry to record the retirement. Answer: Reacquisition price (P 900,000 X 101%) P 909,000 Less: Net carrying amount of bonds redeemed: Par value P 900,000 Unamortized discount (13,500) Unarnortized bond issue costs [7,2001 879,300 Loss on redemption P 29,700 Calculation of unamortized discount Original amount of discount: P 900,000 X 3% = P 27,000 P 27,000f 10 = P 2,700 amortization per year Amount of discount unamortized: P 2,700 X 5 = P 13,500 Calculation of unamortized issue costs Original amount of costs: P 24,000 X P 900,000/P 1,500,000 = P 14,400 P 14,400! 10 = P 1,440 amortization per year Amount of costs unamortized: P 1,440 X 5 = P 7,200 January 2, 2006 T'lnnrlr- Dnvn'I-{In onn nnn