Reference no: EM132716134

Question -

1. On January 1, 2018, Banno Corporation issued $1,500,000 Face Value of 10% coupon bonds at a price of 103, due December 31 2027. Interest on the bonds is payable annually each December 31. The premium on the bond is being amortized on a straight-line basis over the ten years (Straight-line is not materially different in effect from the preferred effective interest method).

The bonds are callable at a price of 100 ½ and on January 1, 2024, called all $1,500,000 Face amount of the bonds and redeemed them. There are no issue costs.

Ignoring income taxes, compute the amount of gain or loss to be recognized by Banno as a result of retiring the bonds in 2024 and prepare the journal entry to record the redemption.

2. Re-do problem 1, but this time assume that there were $24,000 of issue costs. Also answer, what is the effect of the issue costs on the gain or loss you calculated in problem 1?

3. Re-do problem 1, but assume that there are no issue costs and that this time, only $900,000 Face Value of the bonds were redeemed.

4. Re-do problem 3, but this time assume that there were $24,000 of issue costs. Also answer, what is the effect of the issue costs on the gain or loss you calculated in problem 3?