Answer:
The Journal entry is as follows:
Retirement of Bond is recorded as shown below:
Bonds payable A/c Dr. $1,000,000
Premium on bonds A/c Dr. $10,000
Loss on retirement of bonds A/c Dr. $40,000
To cash A/c $1,050,000
(For bonds retired)
Workings:
Premium on bonds:
= Current book value - Face value
= $1,010,000 - $1,000,000
= $10,000
cash = Face value + premium of 5 percent over par
= $1,000,000 + ($1,000,000 × 0.05)
= $1,000,000 + $50,000
= $1,050,000
