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On January 1, 2019, Zend Corporation issued $500,000, 8% bonds, receiving a $20,000 premium. On the...

On January 1, 2019, Zend Corporation issued $500,000, 8% bonds, receiving a $20,000 premium. On the interest date 5 years later, after the bond interest was paid and after 40% of the premium had been amortized, the corporation purchased the entire issue on the open market at 98 and retired the issue. Prepare the journal entry to record the retirement.

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Answer #1

Premium on bonds payable = $20,000

Amortized bond premium = 20,000 x 40%

= $8,000

Unamortized bond premium = Premium on bonds payable-Amortized bond premium

= 20,000-8,000

= $12,000

Par value of bonds = $500,000

Bond were retired at 98

Cash paid to retire bonds = 500,000 x 98%

= $490,000

Gain on redemption of bonds = Par value of bonds+ Unamortized bond premium-Cash paid to retire bonds

= 500,000+12,000-490,000

= $22,000

General Journal Debit Credit
Bonds payable $500,000
Premium on bonds payable $12,000
Gain on redemption of bonds $22,000
Cash $490,000
( To record the retirement of bonds)
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