Question

Janene Corporation retires its bonds at 108 on January​ 1, after the payment of interest. The face value of the bonds is $650,000. The carrying value of the bonds at retirement is $669,500. The entry to record the retirement will include a

A.credit of $32,500 to Premium on Bonds Payable.

B.debit of $32,500 to Premium on Bonds Payable.

C.debit of $19,500 to Premium on Bonds Payable.

D.credit of $19,500 to Premium on Bonds Payable.

Answer 1

--Complete entry would be:

Accounts title	Debit	Credit
Bonds Payable	$650,000
Premium on Bonds Payable	$19,500
Loss on redemption of Bonds	$32,500
Cash		$702,000

--Correct Answer = Option 'C' Debit of $ 19500 to Premium on Bonds Payable.

--Premium account will be debited because unamortised Premium account balance is a NORMAL credit balance.

A	Face Value of Bond	$650,000
B	Carrying value at the time of retirement	$669,500
C = B - A	Unamortised Premium balance	$19,500
D = A x 108/100	Cash paid to retire	$702,000
E = D - B	Loss on redemption of Bonds	$32,500