Question

The following are two independent situations.

1.		Crane Corporation redeemed $137,100 face value, 12% bonds on June 30, 2020, at 108. The carrying value of the bonds at the redemption date was $123,600. The bonds pay annual interest, and the interest payment due on June 30, 2020, has been made and recorded.
2.		Tastove Inc. redeemed $153,000 face value, 17.50% bonds on June 30, 2020, at 98. The carrying value of the bonds at the redemption date was $155,000. The bonds pay annual interest, and the interest payment due on June 30, 2020, has been made and recorded.

For each independent situation above, prepare the appropriate journal entry for the redemption of the bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Account Titles and Explanation	Debit	Credit
1.
2.

Answer 1

Answer 1:

No	Account Titles and Explanation	Debit	Credit
1.	Bonds Payable	137,100
	Loss on Redemption of Bonds (Working)	24,468
	Discount on Bonds Payable ($137,100 - $123,600)		13,500
	Cash ($137,100 * 108%)		148,068
	(To record redemption of the bonds)

Working:

Loss on Redemption = Cash paid on redemption - Carrying value of the bonds at the redemption

= $148,068 - $123,600 = $24,468

Answer 2.

No	Account Titles and Explanation	Debit	Credit
2	Bonds Payable	153,000
	Premium on Bonds Payable ($153,000 - 155,000)	2,000
	Gain on Redemption of Bonds (Working)		5,060
	Cash ($153,000 * 98%)		149,940
	(To record redemption of the bonds)

Working:

Gain on Redemption of Bonds = Carrying value of the bonds at the redemption - Cash paid on redemption

= $155,000 - $149,940 = $5,060