Question

Hoffman Corporation retires its bonds at 106 on January 1, following the payment of annual interest. The face value of the bonds is $400,000. The carrying value of the bonds at the redemption date is $419,800. The entry to record the redemption will include a:

A. debit of $24,000 to Premium on Bonds Payable.
B. credit of $4,200 to Gain on Bond Redemption.
C. debit of $19,800 to Premium on Bonds Payable.
D. redit of $19,800 to Loss on Bond Redemption.

Answer 1

The correct answer is C

Step-by-step explanation:

The journal entry to record the redemption of the bonds is as:

Bonds Payable A/c..................................Dr $400,000

Premium on bonds Payable A/c............Dr $19,800

Cash A/c...............................................Cr $419,800

Being record the redemption of bonds payable

As there is redemption of bonds payable, so the bonds payable account is debited with the amount of face value and there is premium of $6, therefore, the premium of bonds payable is debited with the amount of premium. And the cash is going out so cash account is credited.

Working Note:

Redemption amount = Carrying value - Face value

Redemption amount = $419,800 - $400,000

Redemption amount = $19,800