Question

The balance sheet for Sandhill Co. reports the following information on July 1, 2022. SANDHILL CO. Balance Sheet (partial) Long-term liabilities Bonds payable $2,100,000 Less: Discount on bonds payable 47,250 $2,052,750 Sandhill decides to redeem these bonds at 105 after paying annual interest. Prepare the journal entry to record the redemption on July 1, 2022. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Answer:

Dr Bond Payable                                             2,100,000

Dr Loss on bond redemption                         152,250

Cr Discount on bond                                     47,250

Cr Cash                                                          2,205,000

(to record the redemption on bond as at Jul 1st 2022 at 105%)

Explanation:

As Bond redemption takes place, the Bond payable account ( which has the Credit side) and Discount on bonds payable ( which has the Debit side) should be fully lifted out of the Balance Sheet. Thus, we Debit Bond redemption by the recorded amount of $2,100,000 and Credit Discount on bonds at the recorded amount of $47,250.

The Cash paid out for bond redemption is 2,100,000 x 105% = $2,205,000 which is credited as cash decreases.

The difference between Debit and Credit side of the 03 entries described above ( 2,205,000 - 2,100,000 - 47,250 = 152,250) will be recorded as Debit to Loss on bond redemption account.