Navarro, Inc., issued $250,000 of eight percent, 20‑year bonds at 98 on June 30, 2012. Interest is payable semiannually on December 31 and June 30. Through June 30, 2018, Navarro amortized $3,000 of the bond discount. On June 30, 2018, Navarro retired the bonds at 102 (after making the interest payment on that date).

Required:

1. Prepare the journal entry to record the bond retirement on June 30, 2018.

For recording the bond retirement we debited the bonds payable, loss on bonds retirement and discount on bonds payable and credited the cash.

Explanation:

Bonds payable Dr, $250,000

Loss on bonds retirement Dr, $7,000

Discount on bonds payable Dr, $2,000

To Cash $255,000

(Being redemption of bonds is recorded)

Working Note:-

Issue price of bonds

($250,000 * 100 * 98) $245,000

Face value $250,000

Discount on bonds $5,000

Discount amortized $3,000

Unamortized Discount $2,000

Redemption price

($250,000 : 100 * 102) $255,000