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Bonds Payable-Callable

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Riley Co has an outstanding $40million face amount of 15% bonds that were issued on January 1. 1998 for $39,000,000. The 20 year bonds mature on December 31, 2017, and are callable at 102 (that is they can be paid off at any time by paying the bondholders 102% of face amount).

Required.

A) Under what circumstances would Riley Co. Managers consider calling the bonds?

B) Assume that the bonds are called December 31, 2010. Use the horizontal model ( or write the journal entry) to show the effect of retirement of the bonds. ( Hint calculate the amount paid to bondholders;then determine how much of the bond discount would have been amortized prior to calling the bonds;and the calculate the gain or loss on retirement.)

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Solution Summary

Riley Co has an outstanding $40million face amount of 15% bonds that were issued on January 1. 1998 for $39,000,000. The 20 year bonds mature on December 31, 2017, and are callable at 102 (that is they can be paid off at any time by paying the bondholders 102% of face amount).

Required.

A) Under what circumstances would Riley Co. Managers consider calling the bonds?

B) Assume that the bonds are called December 31, 2010. Use the horizontal model ( or write the journal entry) to show the effect of retirement of the bonds. ( Hint calculate the amount paid to bondholders;then determine how much of the bond discount would have been amortized prior to calling the bonds;and the calculate the gain or loss on retirement.)

Show work in excel

$2.19