Example $9$: Review the completed example below.

A company has a $\backslash (\backslash$$ $500,000\backslash )$ callable bond with a $\backslash (\backslash$$ $7,000\backslash )$ premium on the books. These balances are reflected in the t $-$accts below. The bond is retired at a price of $102.$ Review these steps to record the retirement entry.

$1)$ Determine how much cash must be paid and record in the T$-$acct. $\backslash (\backslash$mathbf$\{\backslash$$ $500,000\}\backslash$mathbf$\{\backslash$times $1.02\}=\backslash$mathbf$\{\backslash$$ $510,000\}\backslash )$

$2)$ Record entry to zero out the Bonds Payable account.

$3)$ Record entry to zero out the Premium account.

$4)$ Add up your debits and credits to this point. If you need a debit to balance out the entry, record it to a "Loss on Retirement of Bonds" account. If you need a credit to balance out the entry, record it to a "Gain on Retirement of Bonds account. In this example, a loss is recorded.

What if the bonds were called at a price of $101?\backslash (\backslash$mathbf$\{\backslash$$ $500,000\}\backslash$mathbf$\{\backslash$times $1.01=\}\backslash$mathbf$\{505,000\}\backslash )$

Example $10$: Use the t $-$accounts below to record the following bond retirement.

A $\backslash$$$200,000$ callable bond with a $\backslash$$$5,000$ discount is called at a price of $104.$ Exercise $8$: Complete the following problem.

A $\backslash$$$20,000,2$ year,$10\backslash \%($Stated rate$)$ bond is sold when the Effective $($Market$)$ rate is $8\backslash \%.$ The bond pays interest semi$-$annually. Assuming a price of $104$ at issuance record the following.

$1.$ Entry required upon issuance of the bond.

Cash proceeds: $\backslash (\backslash$$ $\backslash$quad x $\backslash$quad$=\backslash$$ $\backslash )$

$2.$ Entry on the first interest payment date. Use STRAIGHT$-$LINE method for amortization.

a$.$ Actual Interest payment

$\backslash$$ $\backslash (\backslash$boldsymbol$\{$x$\}\backslash )\backslash (\backslash$mathbf$\{\backslash \%\}\backslash$boldsymbol$\{$x$\}\backslash$mathbf$\{6/12\}=\backslash$mathbf$\{\backslash$$$\}\backslash )$

b$.$ Amortization of the Premium using the STRAIGHT$-$LINE method. periods$=\backslash$$

$3.$ Entry on the second interest payment date. Use STRAIGHT$-$LINE method for amortization.

a$.$ Actual Interest payment

b$.$ Amortization of the Premium using the STRAIGHT$-$LINE method.

Next, use the t $-$accounts below the table to repeat the same three steps $($from above$)$ but this time use the EFFECTIVE INTEREST RATE METHOD. Round any calculations to the nearest dollar$\mathrm{.}10\backslash \%$ x $\backslash$$$20$K $/28\backslash \%$ x Col.E $/2$Interest ExpensePremium AmortizationPremium BalanceCarrying Amount points for correct answer. No partial credit$).$

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