Question

In 2005, ABC Company issued $100,000 of 20-year bonds at face value. Ten years later, in 2015, the company retired the bonds early by purchasing them in the open market at $101,000. The entry to record this transaction includes a:

Answer 1

Answer:

b. debit to Loss on Bond Retirement of $1,000.

Explanation:

Options are " A.  credit to Gain on Bond Retirement of $1,000.  B.  debit to Loss on Bond Retirement of $1,000.  C.  debit to Bonds Payable of $101,000.  D.  credit to Cash of $100,000."

When a bond is retired before maturity a gain or loss may arise. In such case if the price paid to retire the bonds is greater the carrying amount of bonds then the company need to record a loss on retirement in the book. On the other hand if the price paid is less than the carrying amount of the bonds at retirement, then the company records a gain on retirement of bonds.