Arrowplan Inc. prepares its financial statements in accordance with ASPE. It issued $800,000 of 7.5%, 15-year bonds dated March 1, 2020, on May 1, 2020, at 97 1/2 plus accrued interest. If Arrowplan Inc. uses the straight-line method of amortization, the entry to retire the bonds on the maturity date would include a:

Question

Quizplus · Accepted Answer

CThe correct entries to retire the bonds at maturity include a debit to Bonds Payable for the face value of the bonds, which is $800,000, not $780,000 as stated in option C. Therefore, the correct entry would involve crediting Cash for $800,000 to reflect the cash outflow to retire the bonds at their face value. The straight-line method of amortization would have gradually reduced any discount or premium on the bonds payable over the life of the bonds, but at maturity, the balance in the Bonds Payable account would be the face value of the bonds, which is $800,000. There is no need to debit or credit any discount or premium accounts at maturity because those accounts would have been fully amortized by the maturity date.