Repayment of bonds payable



Q30. Repayment of bonds payable
On November 1, 20×1, Entity A paid $70,000 to pay off bonds payable. The bonds payable had $70,000 book value on November 1, 20×1.
Prepare a journal entry to record this transaction.

A30. Decreases in bonds payable are recorded on the debit side.

  Debit Credit
Bonds payable 70,000  
     Cash   70,000

[Note]
1. Decrease in bonds payable (liability): debit
2. Since the amount of cash paid is equal to the book value of bonds payable, there is no gain or loss.

[Exercise]
On December 1, 20×1, Entity B paid $90,000 to pay off bonds payable. The bonds payable had $92,000 book value on December 1, 20×1. The bonds are due in August 20×2.

  Debit Credit
Bonds payable 92,000  
     Cash   90,000
     Gain on early extinguishment of debts   2,000

[Note]
1. Decrease in bonds payable (liability): debit
2. Increase in gain on early extinguishment of debts (gain): credit
3. Since the entity was able to pay only $90,000 in cash to pay off $92,000 bonds payable, the remaining $2,000 is a gain on early extinguishment of debts.
4. Increases in gains are recorded on the credit side.

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