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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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Retirement of Debt Moore Company is preparing its statement of cash flows for the current year. During the year, the company retired two issuances of debt and properly recorded the transactions. These transactions were as follows:

  1. 1. Paid cash of $18,000 to retire bonds payable with a face value of $20,000 and a book value of $18,300.
  2. 2. Paid cash of $38,000 to retire bonds payable with a face value of $35,000 and a book value of $37,000.

Required:

Record, in journal entry form, the entries that Moore would make for the preceding transactions on its spreadsheet to prepare its statement of cash flows.

To determine

Journalize the spread sheet entry to record the retirement of bonds.

Explanation

Statement of cash flows: Statement of cash flow reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period. Statement of cash flows includes the changes in cash balance due to operating, investing, and financing activities.

Worksheet: A worksheet is a spreadsheet used while preparing a financial statement. It is a type of form having multiple columns and it is used in the adjustment process. The use of a worksheet is optional for any organization. A worksheet can neither be considered as a journal nor a part of the general ledger.

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.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

  • Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
  • Ø 
  • Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
  • Ø 

Report the spreadsheet entry in journal entry format for retirement of bonds:

1.

DateAccounts and ExplanationDebit ($)Credit ($)
Bonds payable20,000 
Discount on bonds payable 1,700
 Payment to retire bonds 18,000
 Gain on retirement of bonds  300
 (To record the retirement of bonds)  

Table (1)

  • Bonds payable is a liability account and it is decreased...

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