Question

clabber company has bonds outstanding with a par value of $101,000 and a carrying value of $97,900. if the company calls these bonds at a price of $95,500, the gain or loss on retirement is:

Answer 1

Given:

Face value = $101,000

Carrying value = $97,900

Bonds call price = $95,500

Find:

Gain or loss on retirement = ?

So, the formula to find the gain or loss on retirement is:

Carrying value – bonds call price

Substituting their values, we get:

$97,900 - $95,500

= $2,400

The journal entries are:

Dr Bonds payable $101,000

Dr Gain on retirement of bonds $1,200

Cr Cash $95,500

Therefore, you gained $2,400 on retirement.

To add, when a bond is retired at any time before its maturity date, it is said to be retired early.

Based on this model, we can say that accounting for bonds retired at maturity is pretty straight forward: the company pays out cash and removes the bond payable from its balance sheet.