Presented below are three independent situations:
(a) Ball Corporation purchased $380000 of its bonds on June 30 2017 at 102 and immediately retired them. The carrying value of the bonds on the retirement date was $371500. The bonds pay annual interest and the interest payment due on June 30 2017 has been made and recorded.
(b) Horton Inc. purchased $400000 of its bonds at 96 on June 30 2017 and immediately retired them. The carrying value of the bonds on the retirement date was $395000. The bonds pay annual interest and the interest payment due on June 30 2017 has been made and recorded.
(c) Valley Company has $80000 10% 12-year convertible bonds outstanding. These bonds were sold at face value and pay annual interest on December 31 of each year. The bonds are convertible into 40 shares of Valley $4 par value common stock for each $1000 par value bond. On December 31 2017 after the bond interest has been paid $30000 par value of bonds were converted. The market value of Valley's common stock was $38 per share on December 31 2017.
Instructions
For each of the independent situations prepare the journal entry to record the retirement or conversion of the bonds.

Question

Robbie Dombrowski · Accepted Answer

Final Answer :  (a)  June 30   Bonds Payable.  380 , 000 Loss on Bond Redemption  16 , 000  Discount on Bonds Payable  8 , 500 Cash  387 , 600 ( $ 380 , 000 − $ 371 , 500 = $ 8 , 500 )     ( $ 380 , 000 × 102 % = $ 387 , 600 )   \begin{array}{llr}  	ext { June 30 }  &  	ext {  Bonds Payable. }  & 380,000\ &  	ext {Loss on Bond Redemption  }  & 16,000\ & 	ext { Discount on Bonds Payable }  & & 8,500\  & 	ext {Cash  }  & & 387,600\  & 	ext {  (\$ 380,000-\$ 371,500=\$ 8,500)    }  & \ &  	ext {   (\$ 380,000 	imes 102 \%=\$ 387,600)   }  & \\end{array}  June 30  ​  Bonds Payable.  Loss on Bond Redemption   Discount on Bonds Payable  Cash  ( $380 , 000 − $371 , 500 = $8 , 500 )     ( $380 , 000 × 102% = $387 , 600 )   ​ 380 , 000 16 , 000 ​ 8 , 500 387 , 600 ​ (b)  June 30   Bonds Payable 400 , 000 Discount on Bonds Payable  5 , 000  Gain on Bond Redemption  11 , 000  Cash  384 , 000   ( $ 400 , 000 − $ 395 , 000 = $ 5 , 000 )   ( $ 400 , 000 × 96 % = $ 384 , 000 ) \begin{array}{llr}  	ext { June 30 }  &  	ext {   Bonds Payable}  & 400,000\  & 	ext {Discount on Bonds Payable  }  & & 5,000\ &  	ext { Gain on Bond Redemption }  & & 11,000\ &  	ext { Cash }  & & 384,000\ &  	ext {    (\$ 400,000-\$ 395,000=\$ 5,000)  }  & \ &  	ext {    (\$ 400,000 	imes 96 \%=\$ 384,000)  }  & \\end{array}  June 30  ​  Bonds Payable Discount on Bonds Payable   Gain on Bond Redemption   Cash    ( $400 , 000 − $395 , 000 = $5 , 000 )   ( $400 , 000 × 96% = $384 , 000 ) ​ 400 , 000 ​ 5 , 000 11 , 000 384 , 000 ​ (c)  Dec. 31   Bonds Payable  30 , 000  Common Stock  4 , 800  Paid-in Capital in Excess of Par  25 , 200   ( $ 4 × 40 × 30 = $ 4 , 800 )   \begin{array}{llr}  	ext { Dec. 31 }  &  	ext {  Bonds Payable  }  & 30,000\ &  	ext { Common Stock }  & & 4,800\  & 	ext { Paid-in Capital in Excess of Par }  & & 25,200\ &  	ext {    (\$ 4 	imes 40 	imes 30=\$ 4,800)    }  & \\end{array}  Dec. 31  ​  Bonds Payable   Common Stock   Paid-in Capital in Excess of Par    ( $4 × 40 × 30 = $4 , 800 )   ​ 30 , 000 ​ 4 , 800 25 , 200 ​

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