Question

Several years ago, Walters Company issued bonds with a face value of $1,000,000 at par. As a result of declining interest rates, the company has decided to call the bond at a call premium of 5 percent over par. Record the retirement of the bonds. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

Walter company Journal $

Date

Bond investment Dr 1,000,000

Bond premium Dr 50,000

Bank Cr. 1,050,000

Narration. Bond retirement at a premium of 5% over par.

Explanation:

The bond investment account is kept fixed at the amount at which it was subscribe, the corresponding interest are debited to income statement on payment to the bond holders.

In the same vein the retirement of the bond at a premium represents an expenses to the firm which has to be debited to the income statement on payment to the bond holders.