Question

On July 1, Aloha Co. exercises a call option that requires Aloha to pay $224,400 for its outstanding bonds that have a carrying value of $228,200 and a par value of $220,000. The company exercises the call option after the semiannual interest is paid the day before on June 30. Record the entry to retire the bonds.

Answer 1

Date Account title Debit Credit

July 1 Bonds Payable $220,000

Premium on Bonds Payable $8,200

Cash $224,400

Gain on retirement of bond $3,800

Working:

Premium = Carrying value - Par value

= 228,200 - 220,000

= $8,200

Gain on retirement of bond = Carrying amount - Amount paid:

= 228,200 - 224,400

= $3,800