Accounting for Bond Retirements

Accounting for Bond Retirements - bonds at the redemption...

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Accounting for Bond Retirements onds are retired when the issuing corporation purchases (redeems) them. The appropriate entries for these transactions are explained next. Redeeming Bonds at Maturity Regardless of the issue price of bonds, the book value of the bonds at maturity will equal their face value. Assuming that the company pays and records separately the interest for the last interest period, Candlestick records the redemption of its bonds at maturity as: 100,000 (To record redemption of bonds at maturity) Redeeming Bonds Before Maturity Bonds may be redeemed before maturity. A company may decide to retire bonds before maturity in order to reduce interest cost and remove debt from its balance sheet. A company should retire debt early only if it has sufficient cash resources. When bonds are retired before maturity, it is necessary to: (1) eliminate the carrying value of the
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Unformatted text preview: bonds at the redemption date, (2) record the cash paid, and (3) recognize the gain or loss on redemption. The carrying value of the bonds is the face value of the bonds less unamortized bond discount or plus unamortized bond premium at the redemption date. To illustrate, assume at the end of the fourth period, Candlestick Inc., having sold its bonds at a premium, retires the bonds at 103 after paying the annual interest. Assume that the carrying value of the bonds at the redemption date is $100,400 (principal $100,000 and premium $400). Candlestick records the redemption at the end of the fourth interest period (January 1, 2014) as: Bonds Payable Premium on Bonds Payable Loss on Bond Redemption (To record redemption of bonds at 103) Note that the loss of $2,600 is the difference between the $103,000 cash paid and the $100,400 carrying value of the bonds....
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This note was uploaded on 11/08/2011 for the course ACCOUNTING ac 201 taught by Professor - during the Spring '11 term at Montgomery.

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Accounting for Bond Retirements - bonds at the redemption...

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