In: Accounting
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.)
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