Question

Record the journal entries for the retirement of bonds under the following separate (unrelated) situations: A company previously issued $2,000,000, 10% bonds, receiving a $120,000 premium. On the current year's interest date, after the bond interest was paid; the bonds had a carrying value of $2,072,000. The company purchased the entire bond issue on the open market for $1,960,000 and retired it. A company issued $100,000 callable bonds that require a $5,000 premium to paid in addition to the par value. Currently, the bonds have a carrying value of 104,500 and are called in. The company pays the par value plus call premium for a total of $105,000 cash. BONUS: On January 1, $300,000 of par value bonds with a carrying value of $310,000 is converted to 50,000 shares of $5 par value common stock. Date Account Debit Credit

Answer 1

Solution 1:

Journal Entries
Event	Particulars	Debit	Credit
1	Bond Payable Dr	$2,000,000.00
	Premium on bond payable Dr	$72,000.00
	To Cash		$1,960,000.00
	To Gain on retirement of bond		$112,000.00
	(To record bond retirment by purchase of same in open market)

Solution 2:

Journal Entries
Event	Particulars	Debit	Credit
1	Bond Payable Dr	$100,000.00
	Premium on bond payable Dr	$4,500.00
	Loss on retirement of bond Dr	$500.00
	To Cash		$105,000.00
	(To record bond retirement before maturity)

Solution 3:

Journal Entries
Event	Particulars	Debit	Credit
1	Bond Payable Dr	$300,000.00
	Premium on bond payable Dr	$10,000.00
	To Common stock		$250,000.00
	To Gain on retirement of bond		$60,000.00
	(Being conversion of bond in to common stock)