B is corrent. When the bonds are retired, the bonds payable, the unamortized discount, and the unamortized bond issue costs must be taken off the books. Cash is credited for the amount paid (93% x $1,000,000 = $930,000), and the difference is the gain or loss on retirement. | Bonds payable | 1,000,000 | | | | Bond discount | | 45,000 | | | Bond issue costs | | 15,000 | | | Cash | | 930,000 | | | Gain | | 10,000 |
The gain can also be computed as
follows: | Net carrying amount of bonds
($1,000,000 – $45,000 – $15,000) | $ 940,000 | | Cash paid (93% × $1,000,000) | (930,000) | | Gain | $ 10,000 |
A is incorrect. When the bonds are retired, the bonds payable, the unamortized discount, and the unamortized bond issue costs must be taken off the books. Cash is credited for the amount paid (93% x $1,000,000 = $930,000), and the difference is the gain or loss on retirement. | Bonds payable | 1,000,000 | | | | Bond discount | | 45,000 | | | Bond issue costs | | 15,000 | | | Cash | | 930,000 | | | Gain | | 10,000 |
The gain can also be computed as
follows: | Net carrying amount of bonds
($1,000,000 – $45,000 – $15,000) | $ 940,000 | | Cash paid (93% × $1,000,000) | (930,000) | | Gain | $ 10,000 |
D is incorrect. When the bonds are retired, the bonds payable, the unamortized discount, and the unamortized bond issue costs must be taken off the books. Cash is credited for the amount paid (93% x $1,000,000 = $930,000), and the difference is the gain or loss on retirement. | Bonds payable | 1,000,000 | | | | Bond discount | | 45,000 | | | Bond issue costs | | 15,000 | | | Cash | | 930,000 | | | Gain | | 10,000 |
The gain can also be computed as
follows: | Net carrying amount of bonds
($1,000,000 – $45,000 – $15,000) | $ 940,000 | | Cash paid (93% × $1,000,000) | (930,000) | | Gain | $ 10,000 |
C is incorrect. When the bonds are retired, the bonds payable, the unamortized discount, and the unamortized bond issue costs must be taken off the books. Cash is credited for the amount paid (93% x $1,000,000 = $930,000), and the difference is the gain or loss on retirement. | Bonds payable | 1,000,000 | | | | Bond discount | | 45,000 | | | Bond issue costs | | 15,000 | | | Cash | | 930,000 | | | Gain | | 10,000 |
The gain can also be computed as
follows: | Net carrying amount of bonds
($1,000,000 – $45,000 – $15,000) | $ 940,000 | | Cash paid (93% × $1,000,000) | (930,000) | | Gain | $ 10,000 |
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