Question

Ten years ago, Cary Company issued $1,500,000 of 7 percent, 10-year bonds at a price of 95. On the maturity date of January 2, after making the final interest payment and recording the related entry, Cary retired the bonds. Complete the necessary journal entry by selecting the account names and dollar amounts from the drop-down menus.

Answer 1

Cary Company's journal entry for retiring the bonds would involve debiting Bonds Payable for $1,500,000, debiting Premium on Bonds for $75,000, and crediting Cash for $1,575,000.

Step-by-step explanation:

Bonds Payable (original issuance value): $1,500,000 (debit)

Premium on Bonds (original issuance price - face value): $1,500,000 * (100% - 95%) = $75,000 (debit)

Cash (payment on maturity): $1,500,000 + $75,000 = $1,575,000 (credit)

The journal entry represents the retirement of the bonds, recognizing the original bond value and the premium paid by issuing the bonds at a price of 95. The Premium on Bonds account is debited to reduce it to zero, and the Bonds Payable account is debited for the original bond value. Cash is credited for the total amount paid on maturity.

Answer 2

Consider the following journal entry

Step-by-step explanation:

Journal entry

Date account and explanation debit credit

Jan 2 Bonds payable 1.500.000

Cash 1.500.000

(To record redemption of bonds)

Note : All discount on bonds payable would be amortized on maturity date so carrying value is equal to face value of bonds