The situations presented here are independent of each other. For each situation,

Question

The situations presented here are independent of each other.

For each situation, prepare the appropriate journal entry for the redemption of the bonds.

a) Pelfer Corporation redeemed $140,000 face value, 9% bonds on April 30, 2014, at 101. The carrying value of the bonds at the redemption date was $126,500. The bonds pay annual interest, and the interest payment due on April 30, 2014, has been made and recorded.

b) Youngman, Inc., redeemed $170,000 face value, 12.5% bonds on June 30, 2014, at 98. The carrying value of the bonds at the redemption date was $184,000. The bonds pay annual interest, and the interest payment due on June 30, 2014, has been made and recorded.

Explanation / Answer

a. 30 April            Bonds Payable   dr.           1,40,000  

               Loss on Bond Redemption dr.
                           ($1,41,400 - $1,26,500)    14,900
                     To Discount on Bonds Payable ($1,40,000 - $1,26,500) 13,500
     
                        To    Cash                                 1,41,400
       (To record redemption of
     bonds at 101)

Interest Expense Dr.                12,600
     To Bond Interest Payable                   12,600
        (To record accrual of
     annual bond interest)

Bond Interest Payable Dr. 12,600
    To Cash                                    12,600
       (To record payment of
     accrued interest)

b. June 30      Bonds Payable    dr.   1,70,000
                    Premium on Bonds Payable dr. ($1,84,000 - $1,70,000) 14,000
                          To Gain on Bond Redemption
                     ($1,84,000 - $1,66,600)    17,400
                          To    Cash                  1,66,600
       (To record redemption of
     bonds at 98)

Interest Expense Dr.                21,250
     To Bond Interest Payable                   21,250
        (To record accrual of
     annual bond interest)

Bond Interest Payable Dr.   21,250
    To Cash                                    21,250
       (To record payment of
     accrued interest)

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.