Question

Eaton Company issued $600,000 of eight percent, 20‑year bonds at 106 on January 1, 2013. Interest is payable semiannually on July 1 and January 1. Through January 1, 2019, Eaton amortized $5,000 of the bond premium. On January 1, 2019, Eaton retired the bonds at 103 (after making the interest payment on that date). Prepare the journal entry to record the bond retirement on January 1, 2019.

Answer 1

Answer:

Bonds payable $600,000  

Premium on bonds payable $31,000  

Gain on bonds retirement $13,000

                 To Cash  $618,000

(Being the redemption of bonds is recorded)

Explanation:

The journal entry is shown below:

On Jan 1, 2019  

Bonds payable $600,000  

Premium on bonds payable $31,000  

Gain on bonds retirement $13,000

                 To Cash  $618,000

(Being the redemption of bonds is recorded)

The computation is shown below:

Issue price of bonds (600000 ÷ 100 × 106)   $636,000

Less: Face value $600,000

Premium on bonds $36,000

Less: Premium amortized till 2019 $5,000

Amortized premium $31,000

Now

Redemption price ($600,000 ÷ 100 × 103) $618,000

For recording this we debited the bond payable , premium and gains on bonds retirement and credited the cash as it reduced the liabilities plus the issued amount exceeded than the face value after considering the amortized same so the same is transferred to premium and the remaining amount is debited to gains on bond retirement.