Question

Redemption of Bonds Payable A $860,000 bond issue on which there is an unamortized premium of $66,000 is redeemed for $758,000 Journalize the redemption of the bonds. If an amount box does not require an entry, leave it blank.

Answer 1

Question 1.

Solution:

Date	General Journal	Debit	Credit
	Bonds payable	$860,000
	Premium on bonds payable	$ 66,000
	Loss on retirement of bonds [($860k + 66K) - $758k]	$168,000
	Cash		$758,000

Question 2.

Solution:

No.	Accounts title	Debit	Credit
1.	Cash	$25,085,615
	Discount on bonds payable	$2,214,385
	Bonds payable		$27,300,000
2.	Interest expense ($25,085,615 * 4%)	$1,003,425
	Discount on bonds payable  ($25,085,615*4% - 27,300,000*3%)		$184,425
	Cash		$819,000
3.	Interest expense	$1,010,802
	Discount on bonds payable ($25,085,615+184,425)4% - (27,300,000*3%)		$191,802
	Cash		$819,000

b. Bonds interest expense for the first year = $1,003,425 + 1,010,802 = $2,014,227

c. The market rate of interest is higher than the contract rate of interest. Therefore, investors are not/less willing to pay full face value of bonds.