On July 1, 2019, Cage Company exercises a $5,000 call option (plus par value) on its...

On July 1, 2019, Cage Company exercises a $5,000 call option (plus par value) on its outstanding bonds that have a carrying value of $495,000 and a par value of $500,000. The company exercises the call option after the semiannual interest paid on June 30, 2019.

Record the entry to retire the bonds.

Expert Solution

Journal Entries
Date	Account Title and explanation	Debit	Credit

July 01, 2019	Bonds Payable	$ 5,00,000
	Premium on call Back bonds	$ 5,000
	Loss on issue of Bonds (diff in carrying value and par value)
	To Cash		$ 5,05,000
	To Discount on Bonds issue		$ 5,000
	(To record the retire of the Bonds)


	Note 1: There is loss of $ 5000 due to unamortiza balance of $ 5000 ($ 500,000 - $ 495,000)
	This loss of $ 5000 will be write off at the time of Buy back

	Note 2: Premium on Call Back bonds is Paid in cash extra on par value of Bond.

ekkarill92 answered 2 years ago

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