On January 1, 2014, Henderson Corporation redeemed $508,500 of bonds at 98. At the time of...

Question:

On January 1, 2014, Henderson Corporation redeemed $508,500 of bonds at 98. At the time of redemption, the unamortized premium was $15,255 and unamortized bond issue costs were $5,085. Prepare the corporation's journal entry to record the reacquisition of the bonds.

Bonds Payable:

Bonds payable is a type of a long term debt issued by a company with a promise to pay interest and principal at a certain price at a specified date in the future. If the bonds are issued at lower amount than its face, it is called bond discount. Bond premium is the opposite where bonds are issued at a price above its face.

Answer and Explanation:

The journal entry to record the reacquisition of the bonds is presented as follows:


Debit Credit
Bonds Payable $508,500
Premium on Bonds Payable 15,255
     Unamortized Bond Issue Costs $5,085
      Gain on Redemption of Bonds 20,340
      Cash 498,330


Computation:


Cash = Face value of bonds payable x rate

= $508,500 x .98

= $498,330


Gain on bond redemption = (Face value of bonds payable + Premium on bonds payable - Unamortized bond issue cost) - Cash

= ($508,500 + $15,255 - $5,085) - $498,330

= $20,340


Learn more about this topic:

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Long-Term Debt: Definition, Cost & Formula

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