Bond Retirement

Bond Retirement


All right, let's talk about bond retirement. So, we've talked about issuing a bond. And, remember issuing a bond. Credit bonds payable, accrued interest, cash, boom, boom. This is BIC, this is discount or premium. Now, early retirement of bonds. So what this says is, the bond may be called, it may be retired prior to once it matures. In other words, it's a five year bond, but two years in, they call it back. Basically, it's the opposite of the entry we just did. So, as we look through this, it's the opposite of the journal entry. So, in doing this, what are we going to do? When we set it up, we credited bonds payable. So, what do we do? Debit bonds payable. So, we're going to debit out the bonds payable, and that's going to be for the bond payable. So, we're going to debit that out.

Now, if there's any unamortized discount or premium, get rid of it. So, remember, when we had debit discount, credit premium, and boom. Debit premium, credit discount. If there's any unamortized bond issue costs, get rid of those. So, we're going to credit out the BIC. Then, we're going to pay some cash. And they're going to tell us how much cash we pay. They're going to say the bonds were retired at 94. The bonds were retired at 101. Whatever amount of cash you paid, that's what you paid? The difference will either be a debit, or a credit, and that debit or credit will either be a loss or a gain. Now, this is a gain or a loss. Now, the gain or loss years ago used to be extraordinary, extraordinary. Remember, "On The Tide in OC". I like to go surfing where? O-N-T-I-D-E N OC. So, it use to be extraordinary. Because, and I'll define this down the road, if it's unusual, infrequent, material, it's extraordinary. Well, what happened is, companies would buy back their bonds at huge gains when interest rates were fluctuating quite a bit, and they would bury it in the income statements, so they said, let's separate it out and make it extraordinary.

Then, as times changed, it said, well, rates aren't that high. It's not that much. Let's make it as ordinary. Now, they said it could be ordinary from continuing operations. It could be extraordinary. If it's unusual in nature and in frequency of occurrence, they've never done this before, it could be extraordinary. Otherwise, it would be ordinary. So, it's either a part of ON, up at the top, right? And other non-operating. Or it's down there extraordinary net of tax. You'll see here it says, �Its classified part of continuing operations unless it is determined to be both unusual and infrequent, in which case it would be considered an extraordinary item, net of tax.� Now, we haven't learned this yet. You'll see this down the road, but as we are learning, for example, about extraordinary items, we'll learn all those details. So, again, it could be ordinary or extraordinary, as far as the bond retirement.

All right, but again, just remember do the opposite journal entry of when you issued the bonds. Another thing here mentioned, bond syncing fund. Now, what's a bond syncing fund? This is a non-current asset. It's cash that's set aside to pay off the bonds. But it is considered a non-current asset. And it's a non-current asset until the bonds mature, and then we're going to pay off the bonds using that money. It says, �Any interest or dividends earned or added to the syncing fund balance and reported as income.� So, any of those interest or dividends would also go to income as well, as far as the bond syncing fund, okay? In a minute, we'll do some questions.

.Accounting, Accountancy, FAR, Roger Philipp, Roger CPA Review, www.rogercpareview.com, Bond Retirement, Bond Issuance, Debit Bonds Payable, CPA, CPA Exam, bond sinking funds, unamortized, Bond (Asset), Finance (Industry), Journal entry