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Question - Basil Ltd. is a public corporation and issues $500,000 of 8% bonds on 1 January 2015, incorporating the following relevant data. Basil Ltd. has a December 31 fiscal year-end.
Bond date 1 January 2014
Maturity date 31 December 2018
Interest dates 30 June; 31 December
Yield rate 4%
On 1 March 2017 Basil Ltd. purchased 20% of the bonds in the open market for 98 plus accrued interest.
Required -
A) Prepare the journal entry to record the bond issue.
B) Prepare the journal entries required in order to update the portion of the bond issue retired, and to record the bond retirement.
C) Assume Basil Ltd. was to repay the full bond at maturity, but nevertheless wished to currently extinguish the entire bond liability through a defeasance transaction. Discuss in detail the requirements of such a disclosure.
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