Question

On January 1, 2020, Pharoah Corporation redeemed $640,000 of bonds at 99. At the time of redemption, the unamortized premium was $19,200. Prepare the corporation’s journal entry to record the reacquisition of the bonds.

Answer 1

The Journal entry is as follows:

Bonds Payable A/c Dr. $640,000

Premium on Bonds Payable A/c Dr. $19,200

To Gain on Redemption of Bonds $25,600

To Cash $633,600

(To record the re-acquisition of the bonds)

Working notes:

Cash = $640,000 × 0.99

= $633,600