On January 1 of Year 1, Lily Company issued a $20,000, 10%, 20-year bond. Interest is paid
Question:
On January 1 of Year 1, Lily Company issued a $20,000, 10%, 20-year bond. Interest is paid annually each December 31, so the first contract interest payment was made on December 31 of Year 1. On the day the bond was issued, the market interest rate on bonds with the same degree of riskiness was 12% compounded annually. The issue price of the bond was $17,012. This bond was retired on January 1 of Year 3, just one day after thesecondcontract interest payment was made. The carrying value of the bond at the time of retirement was $17,100. The total amount paid to retire this bond was $19,700. Lily uses the effective-interest method on its books. The entry to record theretirement of this bond would include a
DEBIT to Loss on Bond Retirement of $2,900
DEBIT to Discount on Bonds of $2,990
CREDIT to Discount on Bonds of $2,688
CREDIT to Discount on Bonds of $2,250
DEBIT to Loss on Bond Retirement of $2,600
DEBIT to Premium on Bonds of $2,450
DEBIT to Premium on Bonds of $2,538
CREDIT to Premium on Bonds of $2,450