Question

Grouper Corp. retires its $640000 face value bonds at 105 on January 1, following the payment of annual interest. The carrying value of the bonds at the redemption date is $663970. The entry to record the redemption will include a________

Answer 1

Step-by-step explanation:

The journal entry is shown below:

Bonds payable A/c Dr $640,000

Premium on bonds payable A/c Dr $23,970

Loss on bonds redemption A/c $8,030

To Cash A/c $672,000 ($640,000 × 1.05)

(Being the redemption of bond is recorded and the remaining balance is debited to the Loss on bonds redemption account)

The Premium on bonds payable is computed below:

= Carrying value of the bonds - face value of the bond

= $663,970 - $640,000

= $23,970