In fiscal 2017, Ruthilda Inc. (Ruthilda) decided to exercise its option to redeem its outstanding bond issue before the maturity date in 2024. The bonds had a face value of $6,000,000 and Ruthilda paid $6,400,000 to re deem them. The bonds were originally issued at a premium of $300,000 and at the time the bonds were redeemed, $120,000 of the premium had been amortized.
a. Prepare the journal entry to record the early retirement of the bonds.
b. What would the entry be if Ruthilda was able to redeem the bonds on the open market at a cost of $5,600,000?
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 the stakeholders.