Question

Do It! Review 15-2b Prater Corporation issued $250,000 of 10-year bonds at a discount. Prior to maturity, when the carrying value of the bonds was $238,750, the company redeemed the bonds at 97. Prepare the entry to record the redemption of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit

Answer 1

Face value of bond = $250,000 and Carrying Value of bond at the time of redumption= $238,750 It means bond was issued at a discount of $11,250,

This discount amount is extra cost of borrowing shold be amortized over the period of life of bond. and balance amount to be adjusted at the time of redumption of bond.

Genrally adjustment for unamrtized discount only required when redumption happen before maturity.

so in the give case redumption happened before maturity and at 97 (i.e 97%) which means at a discount of 3%.

Redumption discount will always be calculated on face value.

Now in the said question is is not given that after how much time bond

Particulars	Dr / Dr	Amount	Amount	Remarks
Bond Payable A/c	Dr	$250,000		Liabilty of Bonds settled
Loss on bond Redumption	Dr	$3,750		Balancing figure
Cash A/c	Cr		$242,500	Cash paid ($250,000*97%)
Discount on bonds Payable A/c	Cr		$11,250	Unamoutized discount adjusted
(Being Bond amortised at a discount of 3%)