Question

At December 31, 2020 the following balances existed on the books of Rentro Corporation: Bonds Payable $7,000,000 Discount on Bonds Payable 960,000 Interest Payable 168,000 If the bonds are retired on January 1, 2021, at 101, what will Rentro report as a loss on redemption

Answer 1

To calculate the loss on redemption of the bonds, subtract the carrying amount from the amount paid to redeem the bonds.

Step-by-step explanation:

When bonds are retired or redeemed, any unamortized bond discount or premium must be recognized as a loss or gain on redemption. In this case, the bonds payable of $7,000,000 and the discount on bonds payable of $960,000 will be considered.

To calculate the loss on redemption, we first need to determine the carrying amount of the bonds. The carrying amount is the face value of the bonds payable minus the discount. So, the carrying amount of the bonds would be $7,000,000 - $960,000 = $6,040,000.

When the bonds are retired at 101, it means they will be redeemed at 101% of their face value. The face value of the bonds is $7,000,000, so 101% of that is $7,070,000.

Therefore, the loss on redemption would be the difference between the carrying amount of the bonds ($6,040,000) and the amount paid to redeem the bonds ($7,070,000), which is $1,030,000. So, Rentro Corporation would report a loss on redemption of $1,030,000.

Answer 2

Loss on retirement of debt = $1,030,000

Step-by-step explanation:

the company paid $7,070,000 in order to retire the bonds, and hte journal entry was:

Dr Bonds payable 7,000,000

Dr Loss on retirement of debt 1,030,000

Cr Cash 7,070,000

Cr Discount on bonds payable 960,000

Loss on retirement of debt = cash paid - carrying value = $7,070,000 - $6,040,000 = $1,030,000