Answer:
Bonds payable $600,000
Premium on bonds payable $31,000
Gain on bonds retirement $13,000
To Cash $618,000
(Being the redemption of bonds is recorded)
Explanation:
The journal entry is shown below:
On Jan 1, 2019
Bonds payable $600,000
Premium on bonds payable $31,000
Gain on bonds retirement $13,000
To Cash $618,000
(Being the redemption of bonds is recorded)
The computation is shown below:
Issue price of bonds (600000 ÷ 100 × 106) $636,000
Less: Face value $600,000
Premium on bonds $36,000
Less: Premium amortized till 2019 $5,000
Amortized premium $31,000
Now
Redemption price ($600,000 ÷ 100 × 103) $618,000
For recording this we debited the bond payable , premium and gains on bonds retirement and credited the cash as it reduced the liabilities plus the issued amount exceeded than the face value after considering the amortized same so the same is transferred to premium and the remaining amount is debited to gains on bond retirement.
The Eaton Company's Journal Entries to record the bond retirement are as follows:
Journal Entries:
January 1, 2019
Debit Bonds Payable $600,000
Debit Bonds Premium $31,000
Credit Cash $618,000
Credit Realized Gain on Bond Retirement $13,000
To record the retirement of the bonds payable.
Data and Calculations:
Bonds Payable = $600,000
Amount realized = $636,000 ($600,000 x 106/100)
Bonds Premium = $36,000 ($636,000 - $600,000)
Bond amortization balance = $5,000
Unamortized portion of bond premium = $31,000 ($36,000 - $5,000)
Analysis:
Bonds Payable $600,000 Bonds Premium $31,000 Cash $618,000 Realized Gain on Bond Retirement $13,000
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