Question

If the market interest rate drops to 5% on December 31, 2022, it will cost $458,290 to retire the bonds. Record the retirement of the bonds.

Answer 1

To record the retirement of bonds we have to debit the bond payable account with $435,376, debit the interest account with $22,914, and credit the cash account with $458,290.

The retirement of the bond takes place when they are required to be redeemed before they mature. In other words, if the company wants to buy back its bonds before the period of the bond is over. Sometimes the company will also have to pay the interest amount that is due on the bond to the bond-holder.

The bondholders are creditors of the company. These are the people to have loaned money to the company and who the company has to pay back either at maturity or when the company wants. This should be specified to the bondholder before issuing him the bond. The transaction that will be written to record the transaction will be:

Bonds Payable a/c Dr. 435,376

Interest a/c              Dr.   22,914

To cash a/c                                         458,290.

(Being the bonds retired and interest amount paid)

Learn more about the retirement of bonds here:

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