Question
In: Accounting
Hulse Corporation retires its $800,000 face value bonds at 105 when the carrying value of the...
Hulse Corporation retires its $800,000 face value bonds at 105 when the carrying value of the bonds at the redemption date is $829,960. Prepare the journal entry to record the retirement of the bond.
Solutions
Expert Solution
Retiring value of bonds = $800,000 * 1.05. = $840,000
Carrying value = $829,960
Since the amount paid to retire the bonds is higher than the carrying value on the bonds, the company needs to record a loss on retirement.
Loss on Retirement = $840,000 - $829,960 = $10,040
| Particulars | Amount | Amount |
| Bonds Payable A/c | 800,000 | |
| Loss on Retirement of Bonds | 10,040 | |
| Premium on Bonds payable | 29,960 | |
| To Cash | 840,000 | |
| (To record the retirement on bonds) |
Since the carrying value of the bonds is greater than the par value of the bonds $800,000, the bonds have been issued at a premium. Hence the Premium on bonds at the time of the retirement is:- $840,000 - $800,000 - $10,040 = $29,960
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