On December 31, 20X0, Limestone Charters issued $20 million of 10-year, 12% debentures. Interest is paid semiannually. The market interest rate at issuance was 14%. One year later, on December 31, 20X1 (after all interest payments and amortization had been recorded for 20X1), the company purchased all the debentures for $19 million. Throughout their life, the debentures had been held by a large insurance company.
Show all amounts in thousands of dollars. Round to the nearest thousand.
1. Compute the gain or loss on early extinguishment.
2. By using the balance sheet equation, present an analysis of the December 31, 20X1, transaction on the issuer’s books.
3. Show the appropriate journal entry.
4. At what price on December 31, 20X1, could Limestone Charters redeem the bonds and realize a $1,000,000 gain?

  • CreatedFebruary 20, 2015
  • Files Included
Post your question