Question

Navarro, Inc., issued $250,000 of eight percent, 20‑year bonds at 98 on June 30, 2012. Interest is payable semiannually on December 31 and June 30. Through June 30, 2018, Navarro amortized $3,000 of the bond discount. On June 30, 2018, Navarro retired the bonds at 102 (after making the interest payment on that date).
Required:
1. Prepare the journal entry to record the bond retirement on June 30, 2018.

Answer 1

Answer:

For recording the bond retirement we debited the bonds payable, loss on bonds retirement and discount on bonds payable and credited the cash.

Explanation:

Bonds payable Dr,                       $250,000  

Loss on bonds retirement Dr, $7,000  

Discount on bonds payable Dr, $2,000

         To Cash                                           $255,000

(Being redemption of bonds is recorded)  

Working  Note:-

Issue price of bonds

($250,000 × 100 × 98)      $245,000

Face value                     $250,000

Discount on bonds     $5,000

Discount amortized      $3,000

Unamortized Discount     $2,000

Redemption price

($250,000 ÷ 100 × 102)     $255,000