Accounting: What the Numbers Mean 11th Edition by Wayne McManus,Daniel Viele,David Marshall

تمرين 2

Bonds payable-callable Hurley Co. has outstanding $60 million face amount of 9% bonds that were issued on January 1, 2004, for $58,500,000. The 20-year bonds mature on December 31, 2023, and are callable at 102 (that is, they can be paid off at any time by paying the bondholders 102% of the face amount).
Required:
a. Under what circumstances would Hurley Co. managers consider calling the bonds?
b. Assume that the bonds are called on December 31, 2016. Use the horizontal model (or write the journal entry) to show the effect of the retirement of the bonds. (Hint: Calculate the amount paid to bondholders; then determine how much of the bond discount would have been amortized prior to calling the bonds; and then calculate the gain or loss on retirement.)