On January 1, 2017, Ditchey issued five-year, 6% bonds payable with a of $3,500,000. The bonds were issued at 96 and pay interest on January 1 and July 1. Ditchey amortizes bond discounts using the straight-line method. On December 31, 2019, Ditchey retired the bonds early by purchasing them at a market price of 99. The company’s fiscal year ends on December 31.
Requirements
1. Journalize the issuance of the bonds on January 1, 2017.
2. Record the semiannual interest payment and amortization of bond discount on July 1, 2017.
3. Record the interest accrual and discount amortization on December 31, 2017.
4. Calculate the carrying value of the bonds payable on December 31, 2019, prior to their retirement.
5. Calculate the gain or loss on the retirement of the bonds payable on December 31, 2019. Indicate where this gain or loss will appear in the financial statements.
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