On January 1, 2017, Delaney Corporation issued five-year, 10% bonds payable with a face value of $2,800,000. The bonds were issued at 91 and pay interest on January 1 and July 1. Delaney amortizes bond discounts using the straight-line method. On December 31, 2019, Delaney retired the bonds early by purchasing them at a market price of 94. The company's fiscal year ends on December 31. 1. Journalize the issuance of the bonds on January 1, 2017.2. Record the semiannual interest payment and amortization of bond discount onJuly 1, 2017.3. Record the interest accrual and discount amortization on December 31, 20174. 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 onDecember 31, 2019. Indicate where this gain or loss will appear in thefinancial statements.

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Answered: On January 1, 2017, Delaney…

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter10: Long-term Liabilities

Section: Chapter Questions

Problem 10.6E

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On January 1, 2017, Delaney Corporation issued five-year, 10% bonds payable with a face value of $2,800,000. The bonds were issued at 91 and pay interest on January 1 and July 1. Delaney amortizes bond discounts using the straight-line method. On December 31, 2019, Delaney retired the bonds early by purchasing them at a market price of 94. The company's fiscal year ends on December 31.

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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