i.Calculation of Gain/(Loss) on retirement of bonds having face value $2,000,000:
For retired bonds:
Issue price [$2,000,000 x 102%] | $2,040,000 |
(Less): Face value | ($2,000,000) |
Premium on bonds payable | $40,000 |
÷ No. of years | 10 |
= Premium amortization per year | $4,000 |
Total premium | $40,000 |
(Less): Premium amortized till Jan 2,2020 [4,000 x 4 years] | ($16,000) |
Unamortized premium | $24,000 |
Face value of the bonds retired | $2,000,000 |
Add: Unamortized premium | $24,000 |
(less): Cash paid on retirement [$2,000,000 x 105%] | ($2,100,000) |
Gain/(Loss) on retirement | ($76,000) |
ii. Journal Entry on retirement:
Date | Account title and Explanation | Debit | Credit |
Jan 2,2020 | Bonds payable | $2,000,000 | |
Premium on bonds payable | $24,000 | ||
Loss on bonds retirement | $76,000 | ||
Cash | $2,100,000 | ||
[To record retirement of bonds] |
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