Question

Whispering Winds Corp. redeemed $174,000 face value, 9% bonds on April 30, 2017, at 104. The carrying value of the bonds at the redemption date was $157,221. The bonds pay annual interest, and the interest payment due on April 30, 2017, has been made and recorded. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Prepare the appropriate journal entry for the redemption of the bonds.

Answer 1

Answer:

Bonds payable             174,000 debit

loss on redemption        23,739 debit

       discount on BP                     16,779   credit

       Cash                                   180,960   credit

--to record the redemption of bonds --

Explanation:

redemption value: 174,000 x 104% = 180,960

carrying value of the bonds:               (157,221)  

loss on redemption of BP                     23,739

There is a loss as the present value of the bonds is lower than we are paying for them

face value           174,000

carrying value     (157,221)  

discount                16,779

there is a discount as the carrying value of the bon is lower than the face value

We write-off the bonds accounts and declare the loss we also credit the cash used.