Question

A $500,000 bond issue on which there is an unamortized discount of $34,000 is redeemed for $474,000.

Required:

Journalize the redemption of the bonds. Refer to the Chart of Accounts for exact wording of account titles.

Chart of Accounts

CHART OF ACCOUNTS

General Ledger

	ASSETS
110	Cash
111	Petty Cash
112	Accounts Receivable
113	Allowance for Doubtful Accounts
114	Notes Receivable
115	Interest Receivable
121	Merchandise Inventory
122	Supplies
131	Prepaid Insurance
140	Land
151	Building
152	Accumulated Depreciation-Building
153	Equipment
154	Accumulated Depreciation-Equipment

	LIABILITIES
210	Accounts Payable
221	Salaries Payable
231	Sales Tax Payable
241	Notes Payable
242	Interest Payable
251	Bonds Payable
252	Discount on Bonds Payable
253	Premium on Bonds Payable

	EQUITY
310	Owner, Capital
311	Owner, Drawing
312	Income Summary

	REVENUE
410	Sales
610	Interest Revenue
611	Gain on Redemption of Bonds

	EXPENSES
510	Cost of Merchandise Sold
511	Bad Debt Expense
512	Credit Card Expense
513	Cash Short and Over
521	Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Repairs Expense
534	Rent Expense
535	Insurance Expense
536	Supplies Expense
551	Depreciation Expense-Building
552	Depreciation Expense-Equipment
590	Miscellaneous Expense
710	Interest Expense
711	Loss on Redemption of Bonds

General Journal

Journalize the redemption of the bonds on December 31. Refer to the Chart of Accounts for exact wording of account titles.

PAGE 1

JOURNAL

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT
1
2
3
4

Answer 1

The required Journal Entry in case of redemption of bonds on 31st December would be as follows:

Amt in $ Amt in $  

Bonds Payable --------------------------------Dr 5,00,000

Loss on redemption on Bonds-------------Dr 8,000

To Cash 4,74,000

To Discount on Bonds Payable 34,000

(Being bonds redeemed,loss on redemption of bonds recognised & cash paid)

Explanation: Carrying amount of a bond is equal to the face value of the bond plus any unamortized premium or less any unamortized discount. Here, the carrying amount of the bond is $5,00,000-$34,000 = $4,66,000

$ 4,74,000 is being paid to redeem bonds for which the carrying amount in the books is $4,66,000, hence, a loss on redemption of bonds of $8,000 is booked.