Question

Novak Corp. redeemed $134,000 face value, 10% bonds on April 30, 2022, at 103. The carrying value of the bonds at the redemption date was $121,002. The bonds pay annual interest, and the interest payment due on April 30, 2022, has been made and recorded. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Answer:

bonds payable     134,000 debit

loss on redemption 17,018 debit

cash                                             138,020 credit

discount on bonds payabke        12,998 credit

Explanation:

redemption disbursement:

face value x redemption quote

134,000  x  103/100 = 138,020

carrying value:            121,002

loss at redemption        17,018

We are using 138,020 cash(asset) to pay a liability for 121,002

discount/premium on the bonds:

face value         134,000

carrying value   121,002

discount:             12,998

In the journal entry we must write-off the bond payable and the discount. Then, declare the loss at redemption and the cash used.