Holthausen Corporation issued $400,000 of 11%, 20-year bonds at 108 on January 1, 2013. Interest is payable semiannually on June 30 and December 31. Through January 1, 2019, Holthausen amortized $4,191 of the bond premium. On January 1, 2019, Holthausen retires the bonds at 103.

Required

a. Prepare journal entries to record the issue and retirement of these bonds.

Journal Entries

Explanation:

The journal entries are as follows

1. Cash $432,000

To Bonds payable $400,000

To Premium on bond payable $32,000

(Being the issuance of the bond is recorded)

The premium on bond payable is computed below:

= $400,000 : $100 * $8

= $32,000

The $8 comes from $108 - $100

2. Bond payable $400,000

Premium on bond payable $27,809

To Cash $412,000 ($400,000 * 103%)

To Gain on bond redemption $15,809 ($432,000 - $4,191 - $412,000)

(Being the retirement of the bond is recorded)