Accounting for Bonds Issued at Face Value
Response to the following problem:
Romulus, Inc., issued $500,000 of 10%, five-year bonds at face value on July 1, 2009. Interest on the bonds is payable semiannually on December 31 and June 30.
1. Provide the journal entry to record the issuance of the bonds on July 1, 2009.
2. Provide the journal entry made on December 31, 2009, to account for these bonds.
3. On September 30, 2010, Romulus elected to retire the bonds early. The market price of the bonds on this date was $486,000. Provide the journal entries to record the early retirement.
4. Why do you think Romulus elected to retire the bonds early?