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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On June 1, 2019, Fignon Company recalls bonds with a face value of $200,000 and a current book value of $190,000. Fignon pays $192,000 to retire the bonds. Prepare the journal entry to record the retirement of the bonds.

To determine

Prepare the journal entry to record the retirement of the bonds.

Explanation

Retirement of bonds:

Bond retirement involves the payback of bonds at the face value. This includes the following

Retirement of bonds at maturity: The carrying value will be equal to the face value of the bond when a bond matures at the time of maturity.

Retirement of bonds before maturity: When bonds mature before maturity date, those bonds are called callable bonds. They are paid off at a specific price by providing an incentive to the holder.

Prepare the journal entry to record retirement of bonds.

DateAccount titles and ExplanationDebitCredit
June 1, 2019Bonds payable$200,000  
 Loss on Bond redemption (2)$2,000  
      Discount on bonds payable (1) $10,000
       Cash $192,000
 (To record retirement of bonds)  

Table (1)

Working notes:

(1)Calculate discount on bonds payable...

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