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Q26E_2

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Horngren'S Financial And Managerial Accounting
Found in: Page 661

Short Answer

Retiring bonds payable before maturity

CoastalView Magazine issued $600,000 of 15-year, 5% callable bonds payable on July31, 2018, at 94. On July 31, 2021, CoastalViewcalled the bonds at 101. Assume annualinterest payments.

Requirements

1. Without making journal entries, compute the carrying amount of the bonds payableat July 31, 2021.

2. Assume all amortization has been recorded properly. Journalize the retirement ofthe bonds on July 31, 2021. No explanation is required.

The bonds payable and loss on the retirement of the bonds is debited by $600,000 and $34,800.The discount on bonds payable and cash is credited by $28,800 and $606,000.

See the step by step solution

Step by Step Solution

Step 1: Calculation of the carrying amount of bonds payable

Date

Particulars

Debit

Credit

July 31, 2021

Bonds payable

$600,000

Loss on Retirement of Bonds

$34,800

Discount on Bonds Payable

$28,800

Cash

$606,000

(To record the retirement of the bonds)

Step 2: Working Notes:

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