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The two bonds of greatest interest are structured as follows: Company A is selling 20 year...

The two bonds of greatest interest are structured as follows: Company A is selling 20 year bonds with a $50,000 par value and an annual coupon rate of 6.25%. The price of Company B's bonds is currently XXX. They offer a $10,000 par value and mature in 10 years. The coupon rate is 8% and coupon payments are made semi-annually. Further research suggests to you that both bonds, which are rated as A+, introduce the same risk to you as an investor.

Assume that Company A originally issued its bonds at a premium and the accounting ledger shows at the time of issue a transaction indicating Premium on Bonds Payable in the amount of $50,000. When it comes to for retirement, which of the following transactions should be booked?

1) Bond Payable debit $1,000,000
2) Bonds Payable credit $2,000,000
3) Debit to Accounts Receivables
4) Debit to Cash
5) Debit to Premium on Bonds Payable

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Answer #1

At the time of retirement of Bond the following accounting Entry is passed:

Bond payable account dr $ 50000

To cash $ 50000

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