JournaldrillEarly retirement at a loss
A journal entry exercise from Journaldrill. Solve it with an account picker and debit and credit fields in your browser, and it is checked the moment you submit.
The task
Ironwood Mills has $200,000 of bonds outstanding with an unamortized discount of $3,500. After the interest payment and amortization for the period have been recorded, Ironwood calls all the bonds at 102 and pays cash.
What this exercise teaches
Carrying value is $200,000 - $3,500 = $196,500 and cash paid is $200,000 x 102% = $204,000. Paying $7,500 more than carrying value creates a loss.
A hint if you get stuck
Remove the bonds and their remaining discount, then compare cash paid with carrying value.
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