For each situation, prepare the appropriate journal entry for the redemption of

Question

For each situation, prepare the appropriate journal entry for the redemption of the bonds.

(a) Martha Corporation retired $142,900 face value, 10% bonds on April 30, 2012, at 102. The carrying value of the bonds at the redemption date was $129,120. The bonds pay annual interest, and the interest payment due on April 30, 2012, has been made and recorded.

(b) Williams, Inc., retired $266,000 face value, 12.5% bonds on June 30, 2012, at 97. The carrying value of the bonds at the redemption date was $287,906. The bonds pay annual interest, and the interest payment due on June 30, 2012, has been made and recorded

Explanation / Answer

Hi,

Please find the answer as follows:

Part A:

Dr Bonds payable 142900
Dr Loss on retirement of bonds 16638
Cr Cash (142900 * 1.02) 145758
Cr Discount on bonds payable (142900 - 129120) 13780

Part B:

Dr Bonds payable 266000

Dr. Premium on Bonds payable (287906 - 266000) 21906

Cr Cash (266000 * .97) 258020
Cr Gain on retirement of bonds 29886

Thanks.

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