Posted by laxer22 on .
Ignoring income taxes compute the amount of loss, if any, to be recognized by Banno as a result of retiring the $900,000 of bonds in 2007 and prepare the journal entry to record the retirement.
On January 2, 2002, Banno Corporation issued $1,500,000 of 10% bonds at 97 due December 31, 2011. Legal and other costs of $24,000 were incurred in connection with the issue. Interest on the bonds is payable annually each December 31. The $24,000 issue costs are being deferred and amortized on a straight-line basis over the 10-year term of the bonds. The discount on the bonds is also being amortized on a straight-line basis over the 10 years. (Straight-line is not materially different in effect from the preferable “interest method”.) The bonds are callable at 101 (i.e., at 101% of face amount), and on January 2, 2007, Banno called $900,000 of the bonds and retired them.