On January 1, 2010, Jacob Issues $800,000 of 9%, 13-Year

question 71

Multiple Choice

On January 1, 2010, Jacob issues $800,000 of 9%, 13-year bonds at a price of 96½. Six years later, on January 1, 2016, Jacob retires 20% of these bonds by buying them on the open market at 105½. All interest is accounted for and paid through December 31, 2015, the day before the purchase. The straight-line method is used to amortize any bond discount. What is the journal entry to record the retirement of 20% of the bonds on January 1, 2016?

• A)\(\begin{array} { | l | r | r | }
• \hline \text { Bonds Payable } & 160,000 & \\
• \hline \text { Cash } & & 156,985 \\
• \hline \text { Discount on Bonds Payable } & & 3,015 \\
• \hline
• \end{array}\)
• B)\(\begin{array} { | l | r | r | }
• \hline \text { Bonds Payable } & 160,000 & \\
• \hline \text { Loss on Retirement } & 11,815 & \\
• \hline \text { Discount on Bonds Payable } & & 3,015 \\
• \hline \text { Cash } & & 168,800 \\
• \hline
• \end{array}\)
• C)\(\begin{array} { | l | r | r | }
• \hline \text { Bonds Payable } & 160,000 & \\
• \hline \text { Discount on Bonds Payable } & 3,015 & \\
• \hline \text { Cash } & & 168,800 \\
• \hline \text { Gain on Retirement } & & 5,785 \\
• \hline
• \end{array}\)
• D)\(\begin{array} { | l | r | r | }
• \hline \text { Bonds Payable } & 160,000 & \\
• \hline \text { Premium on Bonds Payable } & 2,585 & \\
• \hline \text { Discount on Bonds Payable } & & 3,015 \\
• \hline \text { Cash } & & 154,400 \\
• \hline
• \end{array}\)
• E)\(\begin{array} { | c | r | r | }
• \hline \text { Bonds Payable } & 168,800 & \\
• \hline \text { Cash } & & 168,800 \\
• \hline
• \end{array}\)

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Definitions:

U-Shaped

A graphical representation showing a particular relationship where initial and end values are higher than those in the middle, resembling a "U" shape.

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