Robin Corporation retires its $800000 face value bonds at 104 on January 1 following the payment of annual interest. The carrying value of the bonds at the redemption date is $829960. The entry to record the redemption will include a

A) credit of $2040 to Loss on Bond Redemption.
B) debit of $2040 to Loss on Bond Redemption.
C) credit of $32040 to Premium on Bonds Payable.
D) debit of $32000 to Premium on Bonds Payable.

Question

Martha Acero · Accepted Answer

Final Answer : B, Explanation :  When a bond is retired before maturity, any unamortized premium or discount must be written off. In this case, since the carrying value ($829,960) is higher than the face value ($800,000), there is an unamortized premium of $29,960. To retire the bonds at 104, Robin Corporation pays $832,000 ($800,000 x 104%). To record the redemption of the bonds, the following entry is made:Debit: Bonds Payable $800,000Debit: Premium on Bonds Payable $29,960Debit: Loss on Bond Redemption $2,040Credit: Cash $832,000The loss on bond redemption is calculated as follows:Cash paid for redemption $832,000Carrying amount of bonds $829,960Loss on redemption $2,040Therefore, option B is the correct answer.

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