Question

Bonds Due to favorable market conditions, SI decided to retire bonds in advance of their maturity date. Bonds with a face value of $5,000,000 were retired at 98% on October 31, 2020. The bonds paid 7% interest every December 31 and had been issued eight years earlier at par value. The bookkeeper recorded the following journal entry on October 31 to retire the bonds and pay accrued interest: DR Bond retirement expense $5,191,667 CR Cash $5,191,667 {($5,000,000 × 7% × 10/12 months) - [$5,000,000 - ($5,000,000 × 98%)]} Assess the appropriate accounting treatment for both financial instrument transactions.

          Bonds
Due to favorable market conditions, SI decided to retire bonds in advance of their maturity date. Bonds with a face value of $5,000,000 were retired at 98% on October 31, 2020. The bonds paid 7% interest every December 31 and had been issued eight years earlier at par value. The bookkeeper recorded the following journal entry on October 31 to retire the bonds and pay accrued interest:
DR Bond retirement expense $5,191,667
CR Cash $5,191,667
{($5,000,000 × 7% × 10/12 months) - [$5,000,000 - ($5,000,000 × 98%)]}
Assess the appropriate accounting treatment for both financial instrument transactions.

Added by Juan Carlos R.

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