Question
On January 2, 2005, Drambuie Corp. issued $1,000,000 of 8% bonds at 98 due December 31, 2014. Legal and other costs of $40,000 were incurred
On January 2, 2005, Drambuie Corp. issued $1,000,000 of 8% bonds at 98 due December
31, 2014. Legal and other costs of $40,000 were incurred in connection with the issue.
Interest on the bonds is payable annually each December 31.
The $40,000 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 (the straight-line basis is not materially different than the effective interest basis).
The bonds are callable at 101 and on January 1, 2011, Drambuie called the bonds and
retired them.
Compute the gain or loss on the early retirement of the bonds on January 1, 2011.
(Be sure to indicate the type of gain or loss.)
Show the journal entry to record the retirement of the bonds on January 1, 2011.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started