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.)

Question

Kenzie Gibson

Business

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.)

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Answers (1)

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Mylie Ewing · Answer 1

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).