(TCO D) Prepare journal entries to record the following retirement. (Show comput

Question

(TCO D) Prepare journal entries to record the following retirement. (Show computations and round to the nearest dollar). The December 31, 2010 balance sheet of Wolfe Co. included the following items: 7.5% bonds payable due December 31, 2018 $1,200,000 Unamortized discount on bonds payable 48,000 The bonds were issued on December 31, 2008 at 95, with interest payable on June 30 and December 31. (Use straight-line amortization) On April 1, 2011, Wolfe retired $240,000 of these bonds at 101 plus accrued interest. (Points : 20)

Explanation / Answer

Journal Entry of retirement:

1) Interest Expense a/c (240000 * 7.5% * 6/12) Dr $9000

To Interest Payable a/c $9000

2) Bonds Payable a/c Dr $240000

Interest Payable a/c Dr $9000

Loss on retirement of bonds Dr $2400

To Cash a/c ((240000 * 101 / 100) + 9000) $251400   

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