Several years ago, Nicole Company issued bonds with a face value of $1,120,000 for $1,005,000. As a result of declining interest rates, the company has decided to call the bond at a call premium of 4 percent over par. The bonds have a current book value of $1,094,000. Record the retirement of the bonds, using a discount account. (lfno entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Dr Bonds payable                              $1,120,000.00

Dr Loss on redemption of bonds      $70,800.00  

Cr Discount on bonds                                                $26,000.00

Cr Cash                                                                        $1,164,800.00  

Explanation:

The unamortized discount on the bond=face value-book value

face value is $1,120,000

book value is $1,094,000

unamortized discount=$1,120,000-$1,094,000=$26,000.00

Cash outflow from redeeming the debts can be calculated as follows:

$1,120,000*104%=$1,164,800.00

Upon redeeming the debt the cash account is credited with the cash payment of $1,164,800.00

The Discount on bonds payable is credited with outstanding unamortized discount  of $26,000

Finally the bonds payable is debited with face value ,consequently,the difference between total credit entries minus the debit gives the loss on redemption of debt

borrow money from the government then pay the government back 5k