Question

For each situation, prepare the appropriate journal entry for the redemption of the bonds.

a. Bramble Corp. redeemed $118,000 face value, 9% bonds on April 30, 2022, at 102. The carrying value of the bonds at the redemption date was $106,554. The bonds pay annual interest, and the interest payment due on April 30, 2022, has been made and recorded. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

b. Youngman, Inc., redeemed $250,400 face value, 14.3% bonds on June 30, 2014, at 96. The carrying value of the bonds at the redemption date was $271,021. The bonds pay annual interest, and the interest payment due on June 30, 2014, has been made and recorded.

Answer 1

Answer and Explanation:

a) Discount:

Carrying Value:$106,554

Face Value:($118,000)

Discount:($11,446)

Calculate Gain/Loss:

Carrying Value:$106,554

Redemption Price:($120,360)

[118,000*102]

Loss:(13,806)

April 30 2022

Dr Bonds Payable $118,000

Dr Loss on Redemption $13,806

Cr Discount on Bonds Payable $11,446

Cr Cash $120,360

(Record retirement of bond at loss.)

(b)Calculate Premium:

Carrying Value:$271,021

Face Value:($250,400)

Premium:$20,621

Calculate Gain/Loss:

Carrying Value:$271,021

Redemption Price:($240,384)

[$250,400*96]

Gain$30,637

June 30, 2022

Dr Bonds Payable $250,400

Dr Premium on Bonds Payable $20,621

Cr Gain on Redemption $30,637

Cr Cash $240,384

(Record retirement of bond at gain.)