Question

The 12/31/2012 Balance Sheet of ABC Corp. reported 10% bonds payable with a face amount of $100 million. The bonds were issued in 2000 and had a remaining discount of $1,200,000 at 12/31/2012. On 01/01/2013, ABC Corp. called the bonds at a price of 103. What entry will ABC make on 01/01/2013 to retire the bonds?

Answer 1

JOURNAL ENTRIES:

Debit: Bonds payable $100,000,000

Debit: Loss on bond retirement $4,200,000

Credit: Discount on bonds payable $1,200,000

Credit: Cash $103,000,000

Step-by-step explanation:

The bonds were retired at 103. Therefore they have been paid $100 million x 1.03 = $103 million to retire the bonds.

$103 million would be credit to cash.

Other journal entries include:

Debit to Bonds payable of $100 million.

Credit to Discount on bonds payable of $1,200,000.

So you have a credit of $103 million a credit of $1,200,000 and a debit of $100 million. To make debits equal credits, you need a debit of $4,200,000. And this would be a loss on bond retirement.