Question

The balance sheet of Indian River Electronics Corporation as of December 31, 2017, included 12.25% bonds having a face amount of $90 million. The bonds had been issued in 2010 and had a remaining discount of $3 million at December 31, 2017. On January 1, 2018, Indian River Electronics called the bonds before their scheduled maturity at the call price of 102. Required: Prepare the journal entry by Indian Rive

Answer 1

Answer:

Dr Bonds payable                     $90,000,000

Dr Loss on bond redemption   $4,800,000

Cr Bank                                                                $91,800,000

Cr Bond discount                                                  $3000,000

Explanation:

Upon redemption of the bond,the bond payable is debited with the face value of the bond of $90 million,discount account is credited with $3 million and payment made is credited to bank at $91.8 million($90 m*$102/$100).Hence the balancing figure is loss incurred from redeeming the bond prematurely.

The bond payable was credited early when the bond was issued to show an obligation of $90 million was owed to bondholders,hence upon repayment, the same account is debited to signify the discharge of the obligation.

Also,the bank account is credited since the organization parted with the sum of $91.8 million, a reduction in asset.