Question

Recording the Early Retirement of a Bond Issued at a Premium (with Premium Account) LO10-7 Several years ago, Cyclop Company issued bonds with a face value of $1,000,000 for $1,140,000. As a result of declining interest rates, the company has decided to call the bonds at a call premium of 5 percent over par. The bonds have a current book value of $1,037,000. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Required: Record the retirement of the bonds, using a premium account.

Answer 1

Date Account Titles and Explanation Debit Credit

Bonds payable $1,000,000

Loss on retirement of bond $13,000

[$1,050,000 - $1,037,000]

Premium on bond $37,000

Cash (1,000,000*105%) $1,050,000

(Record the retirement of the bonds, using a premium account)