Question

Ajax, Inc., issued callable bonds with a par value of $1,000,000 that require the payment of a call premium of $10,000. The bonds have a carrying value of $990,000. We call these bonds prior to maturity on September 30. Complete the necessary journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Answer 1

Answer:

The journal entry is as follows:

On September 30,

Bonds payable A/c Dr. $1,000,000

Loss on bonds retirement A/c Dr. $20,000

              To Discount on bond                        $10,000

              To cash A/c                                       $1,010,000

(To record the bonds payable and retirement)

Workings:

Loss on bonds retirement:

= (Cash + Discount on bonds) - Par value of callable bonds

= ($1,010,000 + $10,000) - $1,000,000

= $1,020,000 - $1,000,000

= $20,000