Question

Redemption of Bonds Payable A $860,000 bond issue on which there is an unamortized premium of $73,000 is redeemed for $773,000. Journalize the redemption of the bonds. If an amount box does not require an entry, leave it blank. Bonds Payable 787,000 x Premium on Bonds Payable 73,000 Gain on Redemption of Bonds 87,000 x Cash 773,000

Answer 1

Solution

General Journal	Debit	Credit
Bonds payable	$ 860,000
Premium on bonds payable	$ 73,000
Gain on redemption of Bonds		$ 160,000
Cash		$ 773,000

When bonds are redeemed the bonds payable account is debited by the Face value of bonds and since premium on bonds have a credit balance, it is debited for entire premium unamortized to make it equal to zero.

Book value of bonds	$ 860,000
Add: Premium unamortized	$ 73,000
	$ 933,000
Less: Cash paid at redemption	$ 773,000
Gain on redemption of bonds	$ 160,000