Question

Spotify bonds were retired with a payment equal to their $100,000 face value. 10 years ago, Spotify issued $100,000 of bonds at face value. If the company retired the bonds now at $102, what would be the journal entry?

A) Debit Bonds Payable $100,000; Credit Cash $100,000
B) Debit Bonds Payable $102,000; Credit Cash $100,000; Credit Gain on Retirement of Bonds $2,000
C) Debit Bonds Payable $102,000; Credit Cash $102,000
D) Debit Bonds Payable $100,000; Debit Loss on Retirement of Bonds $2,000; Credit Cash $102,000

Answer 1

The correct journal entry to retire Spotify bonds at $102,000 would be: Debit Bonds Payable $100,000; Debit Loss on Retirement of Bonds $2,000; Credit Cash $102,000.

Step-by-step explanation:

The correct journal entry to retire Spotify bonds at $102,000 would be:

Debit Bonds Payable $100,000; This reflects the decrease in the liability of the company as it retires the bonds.

Debit Loss on Retirement of Bonds $2,000; This recognizes the loss incurred by the company due to retiring the bonds at a lower value than their face value.

Credit Cash $102,000; This reflects the cash outflow from the company as it pays off the bonds.

Therefore, the correct option would be D) Debit Bonds Payable $100,000; Debit Loss on Retirement of Bonds $2,000; Credit Cash $102,000.