Reference no: EM133099373

Question - On January 1, 2021, Magnus Manufacturing Inc., a company following IFRS, sold 5-year bonds. The bonds were dated January 1, 2021. Interest is paid semi-annually on January 1 and July 1 each year. On May 1, 2023, Magnus purchased some of the bonds on the open market for their fair value plus accrued interest and retired them. Magnus uses the effective interest method for the amortization of bond premiums and discounts. Other information pertaining to the issuance of the bonds follows:

Par-value of the bonds sold $13,601,000

Stated rate of interest for the bonds issued 9%

Effective rate of interest for the bonds issued 7%

Percentage of bonds retired on May 1, 2023 28%

Price at which bonds were repurchased on May 1, 2023 100

Assume that Magnus has a December 31 year end, and that the company pays any interest accrued at the time the debt is retired.

Required -

1. Prepare an amortization schedule for the first 3 years of the bond issue.

2. Prepare the journal entry for the issuance of the bond on January 1, 2021.

3. Prepare all journal entries after the issuance of the bond until December 31, 2021.

4. Calculate the gain or loss on the partial retirement of the bonds on May 1, 2023.

5. Prepare the journal entries to record the partial retirement of the bonds on May 1, 2023.