A company retires its bonds at 105. The face value is $100,000 and the carrying amount of the bonds at the retirement date is $103,745. The issuer's journal entry to record the retirement will include a:

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The carrying amount of the bonds ($103,745) is less than the amount paid to retire the bonds ($105,000), resulting in a gain on bond retirement. Therefore, the company will debit Premium on Bonds for the difference between the carrying amount and the face value ($100,000 - $103,745 = $3,745) and credit Gain on Bond Retirement for the difference between the amount paid to retire the bonds and the carrying amount ($105,000 - $103,745 = $1,255).

A Company Retires Its Bonds at 105