Question

 

Question: Retiring bonds payable before maturity

CoastalView Magazine issued $600,000 of 15-year, 5% callable bonds payable on July

31, 2018, at 94. On July 31, 2021, CoastalView called the bonds at 101. Assume annual

interest payments.

Requirements

1. Without making journal entries, compute the carrying amount of the bonds payable

at July 31, 2021.

2. Assume all amortization has been recorded properly. Journalize the retirement of

the bonds on July 31, 2021. No explanation is required

Answer 1

 

Step 1: Definition of the carrying amount

The carrying amount is the amount that comes after deducting a discount or adding a premium to the face value of the bonds.

Step 2: Calculation of the carrying amount of bonds payable

 

Step 3: Calculation of the carrying amount of bonds payable

Date	Particulars	Debit	Credit
July 31, 2021	Bonds payable	$600,000
	Loss on Retirement of Bonds	$34,800
	Discount on Bonds Payable		$606,000
	Cash
	(Being entry for the retirement of the bonds)

 

 

The loss on the retirement of the bonds is $34,800.