Question

Marin, Inc. redeemed $159,000 face value, 13.5% bonds on June 30, 2022, at 95. The carrying value of the bonds at the redemption date was $171,720. The bonds pay annual interest, and the interest payment due on June 30, 2022, has been made and recorded. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Required:
Prepare the appropriate journal entry for the redemption orconversion of the bonds.

Answer 1

To record the redemption or conversion of the bonds, the appropriate journal entry would be: Debit Bonds Payable $159,000, Debit Premium on Bonds Payable $12,720, Credit Cash $151,050, Credit Gain on Bond Redemption $21,670.

Step-by-step explanation:

To record the redemption or conversion of the bonds, the appropriate journal entry would be:

Debit Bonds Payable $159,000

Debit Premium on Bonds Payable $12,720

Credit Cash $151,050

Credit Gain on Bond Redemption $21,670

The Bonds Payable account is debited for the face value of the redeemed bonds, which is $159,000 in this case.

The Premium on Bonds Payable account is also debited for the difference between the face value of the bonds and their carrying value, which is $12,720 ($171,720 - $159,000).

The Cash account is credited for the amount paid to redeem the bonds, which is $151,050 ($159,000 x 0.95).

Finally, the Gain on Bond Redemption account is credited for the difference between the carrying value of the bonds and the amount paid, which is $21,670 ($171,720 - $151,050).