Question

Hurette Inc. (Hurette) decided to exercise its option to redeem its outstanding bond issue before the bonds matured in 2022. The bonds had a face value of $10,000,000 and Hurette paid $10,500,000 to redeem them. The bonds were originally issued at a discount of $500,000 and at the time the bonds were redeemed $200,000 of the discount had been amortized.

Required:
a. Prepare the journal entry to record the early retirement of the bonds.
b. What would the entry be if Hurette were able to redeem the bonds on the open market at a cost of $9,500,000?
c. What is the economic significance of a gain or loss on the redemption of bonds? How do you think the gain or loss should be reported in the financial statements? Explain.
In responding, consider the information needs of users of the financial statements.



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  • CreatedFebruary 26, 2015
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