Question

The long-term liability section of Eastern Post Corporation's balance sheet as of December 31, 2020, included 11% bonds having a face amount of $40.4 million and a remaining premium of $6.1 million. On January 1, 2021, Eastern Post retired some of the bonds before their scheduled maturity. Required: Prepare the journal entry by Eastern Post to record the redemption of the bonds under each of the independent circumstances below: 1. Eastern Post called half the bonds at the call price of 103 (103% of face amount). 2. Eastern Post repurchased $10.1 million of the bonds on the open market at their market price of $10.6 million.

Answer 1

Bonds payable DR $20.20

Premium on bonds payable DR $3.05

TO Cash $20.806

TO Gain on redemption of bonds $2.444

IN THE ABOVE ENTRY WE ARE BUYING HALF THE CALL PRICE OF 103% SO 40.4+6.1=46.5

HALF IS 23.25. GAIN IS 23.25-20.806(20.2*103%)=2.444

sIMILARLY BELOW ENTRY IS FOR 25%WHICH IS 10.1/40.4

Bonds payable      Dr          $10.1

Premium on bonds payable    Dr $1.525

TO Cash $10.6

TO Gain on redemption of bonds $1.025