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DochEvi [55]
3 years ago
7

Farmland Corporation issued $400,000 of 10-year bonds at a discount. Prior to maturity, when the carrying value of the bonds was

$388,000, the company redeemed the bonds at 99. Prepare the entry to record the redemption of the bonds
Business
1 answer:
Stells [14]3 years ago
3 0

Answer:

Please see journal entries below

Explanation:

The entries below are made in the books of Farmland Corporation, the issuer of the bond.

Upon redemption, journal entries would be as follows.

Debit: Bond Account $396,000 (cash paid to bond investors)

Credit: Cash/Bank Account $396,000 (cash paid to bond investors)

Debit: Profit/Loss Account $8,000 (premium paid over carrying value of bond, calculated below: )

Credit: Bond Account $8,000 (premium paid over carrying value)

Premium over carrying value is calculated as follows:

Redemption value - carrying value

= (\frac{redemption price}{carrying price} *face value) - carrying value

=(\frac{99}{100} *$400,000) - $388,000

= $396,000 - $388,000

= $8,000

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