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16 June, 12:13

Tyrell Company issued callable bonds with a par value of $24,000. The call option requires Tyrell to pay a call premium of $500 plus par (or a total of $24,500) to bondholders to retire the bonds. On July 1, Tyrell exercises the call option. The call option is exercised after the semiannual interest is paid the day before on June 30. Record the entry to retire the bonds under each separate situation.

1. The bonds have a carrying value of $19,500.

2. The bonds have a carrying value of $25,000.

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  1. 16 June, 13:45
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    case 1)

    bonds payable 24,000

    loss on retirement 5,000

    discount on BP 4,500

    cash 24,500

    case 2)

    bonds payable 24,000 debit

    premium on BP 1,000 debit

    gain on retirement 500 credit

    cash 24,500 credit

    Explanation:

    we are going to write off the bonds payable and their discount account

    we also debit the cash account for the amount of cash outlay to retire the bond

    the difference between cash and the carrying value will be the loss on retirement when lower

    and a gain on retirement when higher.

    case 1)

    carrying value 19,500

    total cash outlay (24,500)

    loss on retirement (5,000)

    case 2)

    carrying value 25,000

    total cash outlay (24,500)

    gain on retrement 500
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