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5 July, 10:04

Several years ago, Cyclop Company issued bonds with a face value of $1,000,000 for $1,045,000. As a result of declining interest rates, the company has decided to call the bonds at a call premium of 5 percent over par. The bonds have a current book value of $1,010,000. Record the retirement of the bonds, using a premium account.

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  1. 5 July, 13:56
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    The Journal entry is as follows:

    Retirement of Bond is recorded as shown below:

    Bonds payable A/c Dr. $1,000,000

    Premium on bonds A/c Dr. $10,000

    Loss on retirement of bonds A/c Dr. $40,000

    To cash A/c $1,050,000

    (For bonds retired)

    Workings:

    Premium on bonds:

    = Current book value - Face value

    = $1,010,000 - $1,000,000

    = $10,000

    cash = Face value + premium of 5 percent over par

    = $1,000,000 + ($1,000,000 * 0.05)

    = $1,000,000 + $50,000

    = $1,050,000
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Home » Business » Several years ago, Cyclop Company issued bonds with a face value of $1,000,000 for $1,045,000. As a result of declining interest rates, the company has decided to call the bonds at a call premium of 5 percent over par.
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