Question

Hoffman Corporation retires its bonds at 106 on January 1, following the payment of semiannual interest. The face value of the bonds is $400,000. The carrying value of the bonds at the redemption date is $419,800. The entry to record the redemption will include aA. debit of $24,000 to Premium on Bonds Payable. B. credit of $4,200 to Gain on Bond Redemption. C. debit of $19,800 to Premium on Bonds Payable. D. credit of $19,800 to Loss on Bond Redemption.

Answer 1

Answer:

B. credit of $4,200 to Gain on Bond Redemption

Explanation:

face value 400,000

callable at 106

cash disbursements 400,000 x 1.06 = 424,000

carrying value (after discount or premium) 419,800

as is higher than face value the onds have a premium for 19,800 dollars

result at redemption:

book value - market value

419,800 - 424,000 = 4,200

Journal entry

Bonds Payable       400,000 debit

Premium on BP         19,800 debit

    Cash                                      424,000 credit

   Gain on Bond of Redemption   4,200 credit

This makes B option correct.