Question

Holthausen Corporation issued $400,000 of 11%, 20-year bonds at 108 on January 1, 2013. Interest is payable semiannually on June 30 and December 31. Through January 1, 2019, Holthausen amortized $4,191 of the bond premium. On January 1, 2019, Holthausen retires the bonds at 103.

Required

a. Prepare journal entries to record the issue and retirement of these bonds.

Answer 1

Journal Entries

Step-by-step explanation:

The journal entries are as follows

1. Cash $432,000

To Bonds payable $400,000

To Premium on bond payable $32,000

(Being the issuance of the bond is recorded)

The premium on bond payable is computed below:

= $400,000 ÷ $100 × $8

= $32,000

The $8 comes from $108 - $100

2. Bond payable $400,000

Premium on bond payable $27,809

To Cash $412,000 ($400,000 × 103%)

To Gain on bond redemption $15,809 ($432,000 - $4,191 - $412,000)

(Being the retirement of the bond is recorded)