Godwin Corporation retires its bonds at 108 on January 1, after the payment of interest. The face value of the bonds is $640,000. The carrying value of the bonds at retirement is $662,500. The entry to record the retirement will include a:

Question

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The carrying value of the bonds is $662,500, and they are retired at 108% of the face value, which is $691,200 ($640,000 x 1.08). The difference between the carrying value and the retirement amount is $28,700 ($691,200 - $662,500), which is a loss. Therefore, the entry will include a debit to Premium on Bonds Payable for the difference between the carrying value and the face value, which is $22,500 ($662,500 - $640,000).

Godwin Corporation Retires Its Bonds at 108 on January 1