Question

Kant Corporation retires its $500,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $471,250. The entry to record the redemption will include a a. credit of $28,750 to Loss on Bond Redemption. b. credit of $28,750 to Discount on Bonds Payable. c. debit of $38,750 to Gain on Bond Redemption. d. debit of $10,000 to Premium on Bonds Payable.

Answer 1

Answer: B. credit of $28,750 to Discount on Bonds Payable

Explanation:

From the question, we are informed that the face value of the bond is $500,000 while the bond's carrying value is $471,250. The bonds were issued at a discount since the carrying value is less than the face value of the bond.

At the time that the bonds was retired, the unarmotized discount on bond payable will be:

= $500,000 - $471,250

= $28,750

Therefore, the entry to record the redemption will include a credit of $28,750 to Discount on Bonds Payable.