Answer:
a) Pelfer Corporation redeemed $140,000 face value, 9% bonds on April 30, 2014, at 101. The carrying value of the bonds at the redemption date was $126,500. The bonds pay annual interest, and the interest payment due on April 30, 2014, has been made and recorded.
Dr Bonds payable 140,000
Dr Loss on retirement of bonds 14,900
Cr Discount on bonds payable 13,500
Cr Cash 141,400
Since the carrying value of the bonds was less than the redemption value, the company will incur in a loss.
b) Youngman, Inc., redeemed $170,000 face value, 12.5% bonds on June 30, 2014, at 98. The carrying value of the bonds at the redemption date was $184,000. The bonds pay annual interest, and the interest payment due on June 30, 2014, has been made and recorded.
Dr Bonds payable 170,000
Dr Premium on bonds payable 14,000
Cr Cash 156,400
Cr Gain on retirement of bonds 27,600
Since the carrying value of the bonds was more than the redemption value, the company will incur in a gain.
