Howell Corporation purchased $350,000 of its bonds on June 30, 2010, at 102 and immediately retired them The carrying value of the bonds on the retirement date was $339,500. The bonds pay semiannual interest and the interest payment due on June 30, 2010, has been made and recorded. How do I prepare the journal entry to record the retirement.
To prepare the journal entry to record the retirement of the bonds, follow these steps:
1. Determine the amount paid to retire the bonds. In this case, Howell Corporation purchased the bonds for $350,000 at 102, which means they paid 102% of the face value.
Calculation: $350,000 * 102% = $357,000
2. Calculate the gain or loss on retirement. The carrying value of the bonds on the retirement date was $339,500, which means there is either a gain or loss on retirement.
Calculation: $357,000 - $339,500 = $17,500 (gain on retirement)
3. Identify the accounts involved in the journal entry:
- Bonds Payable: represents the face value of the bonds being retired.
- Discount on Bonds Payable: represents the carrying value of the bonds being retired.
- Gain on Bond Retirement: represents any gain made on the bond retirement.
- Cash: represents the amount paid to retire the bonds.
4. Prepare the journal entry:
Debit: Bonds Payable ($350,000) - Face value of the bonds being retired
Credit: Discount on Bonds Payable ($339,500) - Carrying value of the bonds being retired
Credit: Gain on Bond Retirement ($17,500) - Gain made on the bond retirement
Credit: Cash ($357,000) - Amount paid to retire the bonds
Journal entry:
Debit: Bonds Payable ........... $350,000
Credit: Discount on Bonds Payable ........... $339,500
Credit: Gain on Bond Retirement ........... $17,500
Credit: Cash ........... $357,000
That's how you prepare the journal entry to record the retirement of the bonds. Make sure to consult with an accounting professional or refer to the specific accounting standards for your jurisdiction to ensure accuracy.