Hooper Corporation has bonds outstanding with a face value of $100,000 and a carrying value of $103,000 on December 31, 2010. If the company calls in and retires these bonds on December 31, 2010, for $105,000, the entry to record the retirement will include a
A) debit to Bonds Payable for $103,000.
B) credit to Cash for $103,000.
C) debit to Loss on Retirement of Bonds for $3,000.
D) debit to Loss on Retirement of Bonds for $2,000.

Question

Quizplus · Accepted Answer

The entry to record the retirement of bonds will include a debit to Bonds Payable for the carrying value of the bonds, which is $103,000. The difference between the amount paid to retire the bonds ($105,000) and their carrying value ($103,000) represents a loss on retirement of bonds, which is $2,000 ($105,000 - $103,000). Therefore, the entry will also include a debit to Loss on Retirement of Bonds for $2,000. The credit will be to Cash for $105,000. The correct answer is D, as it includes the debit to Loss on Retirement of Bonds for $2,000.

Hooper Corporation Has Bonds Outstanding with a Face Value of $100,000