On 1 July 2013,a company redeemed its $200 000 debenture liability using its available cash on hand.The terms of the debenture issue provided that a premium of 5% was to be paid on redemption of the debentures.Which of the following is the entry to record the redemption?

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When redeeming a debenture liability with a premium, the premium amount is added to the carrying value of the liability. The entry to record this redemption would be to debit the debenture liability account for its carrying value of $200,000 and credit cash for the same amount. Then, the premium of 5% (which is $10,000) is debited to the debenture premium account, while the same amount is credited to the income statement account. Therefore, the correct entry would be debit Debenture Liability $200,000, credit Cash $200,000, debit Debenture Premium $10,000, and credit Income Statement $10,000. This entry corresponds only to option C.

On 1 July 2013,a Company Redeemed Its $200 000 Debenture