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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

A Redemption of bonds payable

A $1,500,000 bond issue on which there is an unamortized discount of $70,100 is redeemed for $1,455,000. Journalize the redemption of the bonds.

To determine

Bonds: Bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations.

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

Discount on bonds payable: It occurs when the bonds are issued at a low price than the face value.

To Journalize: The redemption of the bonds.

Explanation

Journalize the redemption of the bonds.

Date Account Title and Explanation Post Ref Debit ($) Credit ($)
Bonds Payable 1,500,000
Loss on Redemption of Bonds Payable (1) 25,100
Discount on Bonds Payable 70,100
Cash 1,455,000
(To record the redemption of the bonds)

Table (1)

Working notes:

Determine the gain or loss on the redemption of the bonds payable.

Step 1: Calculate carrying amount of bonds payable on the redemption.

  Carrying amount of bonds payable = (Face value + Unamortized discount )   =$1,500,000+$70,100=$1,429,900

Step 2: Compute loss on the redemption of the bonds payable

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