Question

The situations presented here are independent of each other.

Answer 1

Answer:

a) Pelfer Corporation redeemed $140,000 face value, 9% bonds on April 30, 2014, at 101. The carrying value of the bonds at the redemption date was $126,500. The bonds pay annual interest, and the interest payment due on April 30, 2014, has been made and recorded.

Dr Bonds payable 140,000

Dr Loss on retirement of bonds 14,900

    Cr Discount on bonds payable 13,500

    Cr Cash 141,400

Since the carrying value of the bonds was less than the redemption value, the company will incur in a loss.

b) Youngman, Inc., redeemed $170,000 face value, 12.5% bonds on June 30, 2014, at 98. The carrying value of the bonds at the redemption date was $184,000. The bonds pay annual interest, and the interest payment due on June 30, 2014, has been made and recorded.

Dr Bonds payable 170,000

Dr Premium on bonds payable 14,000

    Cr Cash 156,400

    Cr Gain on retirement of bonds 27,600

Since the carrying value of the bonds was more than the redemption value, the company will incur in a gain.