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20 May, 10:58

Hoffman Corporation retires its bonds at 106 on January 1, following the payment of semiannual interest. The face value of the bonds is $400,000. The carrying value of the bonds at the redemption date is $419,800. The entry to record the redemption will include aA. debit of $24,000 to Premium on Bonds Payable. B. credit of $4,200 to Gain on Bond Redemption. C. debit of $19,800 to Premium on Bonds Payable. D. credit of $19,800 to Loss on Bond Redemption.

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  1. 20 May, 11:28
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    B. credit of $4,200 to Gain on Bond Redemption

    Explanation:

    face value 400,000

    callable at 106

    cash disbursements 400,000 x 1.06 = 424,000

    carrying value (after discount or premium) 419,800

    as is higher than face value the onds have a premium for 19,800 dollars

    result at redemption:

    book value - market value

    419,800 - 424,000 = 4,200

    Journal entry

    Bonds Payable 400,000 debit

    Premium on BP 19,800 debit

    Cash 424,000 credit

    Gain on Bond of Redemption 4,200 credit

    This makes B option correct.
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