Question

At December 31, 2017 the following balances existed on the books of Beerbo Inc.: $1,200,000 BONDS PAYABLE $168,000 DISCOUNT ON BONDS PAYABLE $30,000 INTEREST PAYABLE If the bonds are retired on January 1, 2018, at 102, what journal entry will Beerbo Inc. record for redemption? (Assume any interest payment is recorded in a different journal entry) DEBIT to the account in the amount of ⭡ BONDS PAYABLE or CASH ⭡ ⭡ (in $) ⭡ DEBIT to the account in the amount of ⭡ LOSS ON BOND REDEMPTION or DISCOUNT ON BONDS PAYABLE ⭡ ⭡ (in $) ⭡ CREDIT to the account in the amount of ⭡ DISCOUNT ON BONDS PAYABLE or BONDS PAYABLE ⭡ ⭡ (in $) ⭡ CREDIT to the account in the amount of ⭡ CASH or LOSS ON BOND REDEMPTION ⭡ ⭡ (in $) ⭡

Answer 1

Answer:

bonds payable     1,200,000

interest payable        30,000

loss on redemption 162,000

                  cash                            1,224,000

                  discount on bonds        168,000

to record redemption of the bonds at 102

Explanation:

To know the gain or loss on redemption we will compare the cash disbursement wiht the carrying value fo the bonds

the vbonds are rescue at 102 which means 102% of the face value:

1,200,000 x 102/100 = 1,224,000 cash disbursement

carrying value of the bonds:

1,200,000 - 168,000 discount + 30,000 interest payable = 1,062,000

loss on redemption: 1,224,000 - 1,062,000 = 162,000

we will write-off the bonds related account and credit cash by the amount paid.