Question

The Titan retires a $25.8 million bond issue when the carrying value of the bonds is $22.8 million, but the market value of the bonds is $28.3 million. The entry to record the retirement will include:a. A credit to cash for $22.8 million. b. A credit of $5.8 million to a gain account. c. A debit of $5.8 million to a loss account. d. No gain or loss on retirement.

Answer 1

The market value is actually $28.6 million not $28.3 million:

The correct answer is option C,debit of $5.8 million to a loss account

Step-by-step explanation:

Retiring the bond at market value implies that cash of $28.6 million was paid,option a credit to cash of $22.8 is wrong.

The cash paid is $28.6 while the book value was $22.8,which means a $5.80 million cash($28.6 million minus $$22.8 million) more was paid,hence a loss of $5.8 million was recorded which should be debited to loss account.

All in all,option C is the correct answer