Ask Question
4 July, 10:12

The balance sheet of Indian River Electronics Corporation as of December 31, 2020, included 10.5% bonds having a face amount of $91.0 million. The bonds had been issued in 2013 and had a remaining discount of $4.0 million at December 31, 2020. On January 1, 2021, Indian River Electronics called the bonds before their scheduled maturity at the call price of 102.

Required:

Prepare the journal entry by Indian River Electronics to record the redemption of the bonds at January 1, 2021. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

+1
Answers (1)
  1. 4 July, 10:33
    0
    1 JAN 2021 Bonds Payable $91 m Dr

    Loss on redemption 5.82 m Dr

    Discount on Bonds Payable $4 m Cr

    Cash $92.82 Cr

    Explanation:

    The bonds are redeemed before the maturity and we have to pay investors in excess of the face value to redeem the bonds. The face value is $91 m which is equal to a denomination of 100. Redeeming a bond at 102 means we are actually paying 102% of face value that is (91*102) / 100 = 92.82

    We calculate the loss on redemption by deducting the carrying value of the bond (91 - 4 = 87) from the cash we paid for the bond redemption (92.82).
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “The balance sheet of Indian River Electronics Corporation as of December 31, 2020, included 10.5% bonds having a face amount of $91.0 ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers