Lyndhurst Company,Inc_Redemption of bonds payable

QUESTION

On January 2, Year 1
the Lyndhurst Company,Inc. a privately-held company, issued $1,000,000, five
–year , 10.00% bonds, dated January 2, Year 1. The bonds provided for
semi-annual interest payments to be made on June 30 and December 31 each year.
Terms of the bond indenture allowed the company to call the bonds at 102 after
one year. The bonds were issued when the market interest rate was 8.00%.

Lyndhurst uses the
effective interest method for amortizing bond discounts and premium

The bonds are term
bonds that mature on December 31, Year 5.

Lyndhurst’s fiscal
year for financial reporting purposes is December 31.

The company called
the bonds at 102 on June 30, Year 2

Lyndhurst called its
10.00%, $1,000,000 bonds on June 30, Year 2, paying bondholders the 102 call
price. On that date, the bonds had a carrying value of $1,060,016.

Compute the gain or
loss to Lyndhurst Company on reacquisition of bonds on June 30, Year 2 and
record the appropriate journal entry

ANSWER:

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