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Old 12-19-2012, 09:28 AM   #1
sgplayer69
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Join Date: Jun 2010
Location: NY
Posts: 3,887
My Ride: 2003 CB M3 Coupe
Financial Accounting Question

Hey All,
Maybe you guys can help me with a problem with early retirement of debt. Friend made it up so if it doesn't make sense let me know:

Company issues 1,000,000 bonds at a premium 5 years ago, current BV is 1,100,000 and will retire the bond early. Must pay an 8% call premium to retire the bonds...

Journal Entry
Bonds Payable (-L)......................Dr 1,000,000
Gain on Bond Call (+Gain, +SE).......Dr 180,000
Premium on B/Payable (+XL, -L)......Cr 100,000
Cash (-A)...................................Cr 1,080,000


is that correct? I was trying to base it off a prof. problem but on Discounts:

Company issues 500,000 bonds at a discount 5 years ago, current BV is 475,000 and will retire the bond early. Must pay an 7% call premium to retire the bonds...

Journal Entry
Bonds Payable (-L).........................Dr 500,000
Loss on Bond Call (+Loss, -SE)...........Dr 60,000
Discount on B/Payable (-XL, +L).........Cr 25,000
Cash (-A)......................................Cr 535,000
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