A $200,000 bond issue with a carrying value of $206,000 is called at 101 and retired.The entry to record the retirement of bonds is:

Question

Quizplus · Accepted Answer

The retirement of bonds at a call price of 101 means that the bonds are being redeemed at a premium. The premium is the difference between the call price and the carrying value, which is $6,000 in this case (101 - 100 x $200,000). The entry to record the retirement of bonds at a premium is to debit the Bonds Payable account for the face value of the bonds ($200,000), credit the Premium on Bonds Payable account for the premium amount ($6,000), and debit the Loss on Bond Retirement account for the difference between the carrying value and the call price ($206,000 - $202,000 = $4,000). The net effect is a decrease in liabilities of $200,000 and a decrease in assets of $206,000, representing the retirement of the bonds.

Option A: This entry does not include the premium on bonds payable and does not account for the loss on bond retirement.

Option B: This entry correctly includes the premium on bonds payable and the loss on bond retirement.

Option C: This entry correctly includes the premium on bonds payable but does not account for the loss on bond retirement.

Option D: This entry only includes the loss on bond retirement and does not account for the premium on bonds payable.

A $200,000 Bond Issue with a Carrying Value of $206,000