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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

Redemption of bonds payable

A $1,200,000 bond issue on which there is an unamortized premium of $63,956 deemed for $1,250,000. 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.

Premium on bonds payable: It occurs when the bonds are issued at a high 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 1,200,000
Premium on Bonds Payable 63,956
Gain on Redemption of Bonds Payable (1) 13,956
Cash 1,250,000
(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 premium )   =$1,200,000+$63,956 =$1,263,956

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

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