Robin Corporation retires its $800000 face value bonds at 104 on January 1 following the payment of annual interest. The carrying value of the bonds at the redemption date is $829960. The entry to record the redemption will include a

Question

Quizplus · Accepted Answer

When a bond is retired before maturity, any unamortized premium or discount must be written off. In this case, since the carrying value ($829,960) is higher than the face value ($800,000), there is an unamortized premium of $29,960. To retire the bonds at 104, Robin Corporation pays $832,000 ($800,000 x 104%). To record the redemption of the bonds, the following entry is made:

Debit: Bonds Payable $800,000 
Debit: Premium on Bonds Payable $29,960 
Debit: Loss on Bond Redemption $2,040 
Credit: Cash $832,000

The loss on bond redemption is calculated as follows:

Cash paid for redemption $832,000 
Carrying amount of bonds $829,960 
Loss on redemption $2,040

Therefore, option B is the correct answer.

Robin Corporation Retires Its $800000 Face Value Bonds at 104