Homework Answers
i.Calculation of Gain/(Loss) on retirement of bonds having face value $2,000,000:
For retired bonds:
| Issue price [$2,000,000 x 102%] | $2,040,000 |
| (Less): Face value | ($2,000,000) |
| Premium on bonds payable | $40,000 |
| ÷ No. of years | 10 |
| = Premium amortization per year | $4,000 |
| Total premium | $40,000 |
| (Less): Premium amortized till Jan 2,2020 [4,000 x 4 years] | ($16,000) |
| Unamortized premium | $24,000 |
| Face value of the bonds retired | $2,000,000 |
| Add: Unamortized premium | $24,000 |
| (less): Cash paid on retirement [$2,000,000 x 105%] | ($2,100,000) |
| Gain/(Loss) on retirement | ($76,000) |
ii. Journal Entry on retirement:
| Date | Account title and Explanation | Debit | Credit |
| Jan 2,2020 | Bonds payable | $2,000,000 | |
| Premium on bonds payable | $24,000 | ||
| Loss on bonds retirement | $76,000 | ||
| Cash | $2,100,000 | ||
| [To record retirement of bonds] |
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