A $600,000 bond was retired at 102 when the carrying value of the bond was $622,000. The entry to record the retirement would include a Select one: a. gain on bond redemption of $10,000. b. loss on bond redemption of $12,000. c. loss on bond redemption of $10,000 d. gain on bond redemption of $12,000.

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Business

Anahi Benton

13 January, 13:30

A $600,000 bond was retired at 102 when the carrying value of the bond was $622,000. The entry to record the retirement would include a Select one: a. gain on bond redemption of $10,000. b. loss on bond redemption of $12,000. c. loss on bond redemption of $10,000 d. gain on bond redemption of $12,000.

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Haylee Levine · Answer 1

The answer is a. gain on bond redemption of $10,000.

Explanation:

As the carrying value of the bond is up to $622,000, while the redemption only takes the company 600,000 x 102% = $612,000 (that is, it takes $612,000 cash to clear $622,000 liabilities); the entry will include a gain on bond redemption of $10,000 which is calculated as $622,000 - $612,000 = $10,000.

Details entry should be:

Dr Bond payable 600,000

Dr Premium on bond 22,000

Cr Cash 612,000

Cr Gain on bond redemption 10,000