Because interest rates have fallen,a company retires bonds which had been issued at their face value of $200,000.The company bought the bonds back at 97.The journal entry to record this retirement includes a debit of:
A)$200,000 to Bonds Payable,a credit of $6,000 to Gain on Bond Retirement,and a credit of $194,000 to Cash.
B)$194,000 to Bonds Payable,a debit to Gain on Bond Retirement of $6,000,and a credit of $200,000 to Cash.
C)$200,000 to Bonds Payable,a credit of $6,000 to Interest Expense,and a credit of $194,000 to Cash.
D)$194,000 to Bonds Payable and a credit of $194,000 to Cash.

Question

Quizplus · Accepted Answer

Since the bonds were issued at face value,there was no premium or discount.Since the cash paid of $194,000 (or face value of $200,000 × call price of 0.97)is less than the carrying value of the bonds of $200,000 (face value),there is a gain of $6,000 (or $200,000 − $194,000).The journal entry to record this retirement includes a debit to Bonds Payable for $200,000 (the face value),a credit to Gain on Bond Retirement of $6,000,and a credit of $194,000 to Cash of $194,000.

Because Interest Rates Have Fallen,a Company Retires Bonds Which Had