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.