(a) Assuming a straight line amortization, the carrying value of the outstanding Carlin Corporation 5-year bonds on January 1st, 2010

The face value of the bond equals $2,400,000. To figure out the proceeds from the sale of the bond, we multiply $2,400,000 (original issued) by the discounted price of $0.95 which equates to $2,280,000. We then subtract $2,280,000 from the original issued value of $2,400,000 which gives us the discount on bonds payable amount of $120,000.

We then take that $120,000 and divide by the five years equating to a bond discount amortization per year of $24,000. The next steps involves subtracting the 2 years of amortization (January 2008 through January 2010) of $48,000 from the original discount on bonds payable amount of $120,000 which gives us a total of $72,000. Lastly, we subtract this final number subtracted from the original issued value of $2,400,000 giving us the total carrying value of the bonds at a value of $2,328,000.

(b) The Journal entry to retire the 5-year bond is

Debit Credit
Bonds Payable $2,400,000
Discount on Bonds Payable $72,000
Gain on Bond Redemption $328,000
Cash $2,000,000
(To record redemption of 8% bonds)

The Journal entry to issue the new 10-year bonds is

Cash $2,000,000
Bonds Payable $2,000,000
(To record sale of 10-year, 11% bonds at par)

(c) Short Memo to the president listing the economic factors that I believe should be considered for her repurchase proposal.

TO: Andrea Carlin, President
FROM: Deanna Whitt, Controller
DATE: February 21, 2012

At this time, repurchasing the 5-year, 8% bonds in the open market at the price of $2,000,000 will result in a gain on bond redemption of $328,000. Clearly, this repurchase is in the best interest of the Carlin