Several years ago, Nicole Company issued bonds with a face value of $1,120,000 for $1,005,000. As a result of declining interest rates, the company has decided to call the bond at a call premium of 4 percent over par. The bonds have a current book value of $1,094,000. Record the retirement of the bonds, using a discount account. (lfno entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Dr Bonds payable                              $1,120,000.00

Dr Loss on redemption of bonds      $70,800.00  

Cr Discount on bonds                                                $26,000.00

Cr Cash                                                                        $1,164,800.00  

Explanation:

The unamortized discount on the bond=face value-book value

face value is $1,120,000

book value is $1,094,000

unamortized discount=$1,120,000-$1,094,000=$26,000.00

Cash outflow from redeeming the debts can be calculated as follows:

$1,120,000*104%=$1,164,800.00

Upon redeeming the debt the cash account is credited with the cash payment of $1,164,800.00

The Discount on bonds payable is credited with outstanding unamortized discount  of $26,000

Finally the bonds payable is debited with face value ,consequently,the difference between total credit entries minus the debit gives the loss on redemption of debt

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