On January 1, 2020, Swifty Corporation redeemed $600,000 of bonds at 99. At the time of...

On January 1, 2020, Swifty Corporation redeemed $600,000 of bonds at 99. At the time of redemption, the unamortized premium was $18,000.

Prepare the corporation’s journal entry to record the reacquisition of the bonds. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round intermediate calculations to 6 decimal places, e.g. 1.251247 and final answer to 0 decimal places, e.g. 38,548.)

Solutions

Expert Solution

According to accounting of redemption of bonds

(i) when a bond is redeemed , all the premiums and discounts should have been amortised .

(ii) if a discount or premium is recorded when the bonds were issued then that amount must be amortised over the life of the bonds or till the redemption of bonds.

*assumption - since no further information regarding face value of the bonds is given so it is assumed that the face value is 99. because of which there will be no gain or loss on reacquisition of the bond.

JOURNAL ENTRIES

(1) BONDS PAYABLE a/c Dr. 6,00,000

CASH a/c 6,00,000

(2) PREMIUM ON BOND PAYABLE a/c Dr. 18,000

INTEREST EXPENSE a/c 18,000

ekkarill92 answered 2 years ago

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