Lopez Co. sold $600,000 of 9%, 10 year bonds on January 1, 2017. the bonds were dated January 1, and interest is paid on January 1 and July 1. The bonds were sold at $105.

Instructions

a) Prepare the journal entry to record the issuance of the bonds on January 1, 2017.

b) Assume that at December 31, 2017, $2,000 of the premium has been amortized. Show the balance sheet presentation of accrued interest and the bond liability at December 31, 2017.

c) Assume that on January 1, 2019, when the bond's amortized cost was $624,000, the company redeemed the bonds at 105. Record the redemption of the bonds assuming that interest for the period has already been paid.

Taking It Further

Why would the bond redemption result in a gain or a loss to Lopez Co.?