On july 1, aloha co. exercises a call option that requires aloha to pay $408,000 for its outstanding bonds that have a carrying value of $412,000 and par value of $400,000. the company exercises the call option after the semiannual interest is paid the day before on june 30.

The journal entry for the following is:

Explanation:

Note: Requirement is record the retirement of bonds maturity.

Bonds Payable A/cDr     $400,000

Premium on bonds payable A/cDr     $12,000

      Cash A/cCr   $408,000

       Gain on retirement of bonds A/cCr  $4,000

Working Note:

Given,

Book value of bonds retirement day is $412,000

Face value of bond is $400,000

Call Price of the bonds is $408,000

Premium on bonds payable = Book value - Face value

= $412,000 - $400,000

= $12,000

Gain on redemption of bonds = Book value - Call Price

= $412,000 - $408,000

= $4,000

A semiannual payment is one that is paid, published, or reported otherwise occurs twice a year, often once every 6 months. The journal entries are shown in the image attached below, kindly go through it for better understanding.

For more information related to the semi-annual interest payment computation, refer to the link:

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