A $300,000 bond issue with a carrying value of $311,000 is called at 103 and retired.The entry to record the retirement of bonds would be:
A) Bonds Payable 309,000
Cash 309,000
B) Bonds Payable 311,000
Cash 311,000
C) Cash 300,000
Bonds Payable 300,000
D) Bonds Payable 300,000
Unamortized Bond Premium 11,000
Cash 309,000
Gain on Retirement of Bonds 2,000

Question

Quizplus · Accepted Answer

When bonds are retired before maturity, the company is required to pay the bondholders the face value of the bonds plus any unamortized bond premium or minus any unamortized bond discount. In this case, the bonds are called at a premium of 3% (103% of face value), so the company will have to pay $309,000 to retire the bonds ($300,000 x 103%). The entry to record the retirement of bonds would be to debit Bonds Payable for $300,000 (the face value of the bonds), credit Unamortized Bond Premium for $11,000 (the amount of premium not yet amortized), credit Cash for $309,000 (the amount paid to retire the bonds), and credit Gain on Retirement of Bonds for $2,000 (the difference between the cash paid and the carrying value of the bonds). Therefore, option D is the correct answer.

A $300,000 Bond Issue with a Carrying Value of $311,000