Question

Oriole Capital Ltd. issued 550 $1,000 bonds at 105. After issuance, similar bonds were sold at 99. Assume that Oriole Capital Ltd. follows ASPE and valued the debt component of the instruments first, applying the residual to the equity component. On a date when the bonds had a carrying value of $546,000 and fair value of $548,390, Oriole paid $590,000 in cash to the bondholders to retire the bonds early.

Record the retirement using the book value method. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

Answer 1

Account Titles and Explanation	Debit	Credit
Bonds Payable	550000
Loss on retirement of Bonds	44000
Cash		590000
Discount on Bonds		4000
Explanation: Carrying amount of a bond payable equals the face value of the bond less any discount or plus any premium. In this scenario, the face value is $550,000 and the carrying value is $546,000, therefore the outstanding balance of discount on bonds payable is $4,000 (550,000-546,000). Since the cash paid to redeem the bonds is $590,000 which exceeds the carrying amount of $546,000 by $44,000 the company needs to record loss of retirement of bonds of $44,000 as above.