RETIREMENT

OF BONDS
 Retirement of Bonds
Bonds without Equity Component
NO Bifurcation

Gain or Loss on Retirement (LIABILITY) Pro t or Loss

Bonds with Equity Component (i.e. convertible bonds)

ISSUE PRICE
Bifurcation
RETIREMENT PRICE

Gain or Loss on Retirement

LIABILITY Pro t or Loss
EQUITY Share premium-Unexercised BCP
fi
fi
 DATE OF RETIREMENT

Before maturity date On maturity date

Gain or Loss on retirement NO Gain or Loss on

retirement
Retirement price < > CV of Bonds payable Retirement price = CV of Bonds payable
 GAIN OR LOSS ON RETIREMENT OF BONDS
WITHOUT EQUITY COMPONENT
LIABILITY
(BONDS PAYABLE)
50 100 150
RETIREMENT PRICE (RP) XX
GAIN = RP < CV
CARRYING VALUE (CV) (XX)
LOSS = RP > CV
GAIN OR LOSS XX (Pro t or Loss)
(50) 150 100
Bonds payable xx
Premium on bonds payable xx

Journal entry: Loss on retirement of bonds RP > CV xx

Discount on bonds payable xx

Cash Total Retirement Price xx

Gain on retirement of bonds RP < CV xx

fi

 585,116
5,819,904

NOMINAL EFFECTIVE
AMORTIZATION OF CV OF BONDS
DATE INTERES INTEREST
PREMIUM PAYABLE
(12%) (10%)
INTEREST
1/1/20 - -
EXPENSE
- 5,851,160

12/31/20 600,000 585,116 14,884 5,836,276

12/31/21 600,000 583,628 16,372 5,819,904

12/31/22 600,000 581,990 18,010 5,801,894

T

 585,116
5,819,904
2,320,758

NOMINAL EFFECTIVE
AMORTIZATION OF CV OF BONDS
DATE INTERES INTEREST
PREMIUM PAYABLE
(12%) (10%)
1/1/20 - - - 5,851,160

12/31/20 600,000 585,116 14,884 5,836,276

12/31/21 600,000 583,628 16,372 5,819,904 CV of Bonds Retired:

12/31/22 600,000 581,990 18,010 5,801,894 5,801,894 x 2,000,000/5,000,000 = 2,320,758
T

 LIABILITY
585,116 (BONDS PAYABLE)
5,819,904
2,320,758 RETIREMENT PRICE
420,758 1,900,000
(2,000,000 x .95 )
-0-

CARRYING VALUE (2,320,758)

GAIN ON RETIREMENT 420,758 ( P/L )

Bonds payable 2,000,000

Premium on bonds payable 320,758 2,320,758 - 2,000,000

Journal entry:
DEC. 31, 2022 Cash 1,900,000

Gain on retirement of bonds 420,758

 585,116
5,819,904

2,320,758
420,758

-0-

Maturity date:
3,481,136
Bonds payable 5,000,000
-0-
Cash 5,000,000
NOMINAL EFFECTIVE CV OF
AMORTIZATION
DATE INTERES INTEREST BONDS
OF PREMIUM
(12%) (10%) PAYABLE
1/1/20 - - - 5,851,160

12/31/20 600,000 585,116 14,884 5,836,276

12/31/21 600,000 583,628 16,372 5,819,904 CV of REMAINING Bonds:

12/31/22 600,000 581,990 18,010 5,801,894 5,801,894 x 3,000,000/5,000,000 = 3,481,136
T

 Retirement of
Convertible Bonds
ISSUE PRICE (Date of Issuance)

LIABILITY EQUITY
( “without” ) ( residual amount )

Total Amount BCP (CONVERTIBLE bonds)

Quoted Price
Face value x Quoted price
Examples: 101, 105, 95, 98 PV of FACE VALUE XX
PV of PERIODIC INTEREST XX
Effective Rate XX
RETIREMENT PRICE (Date of Retirement)

LIABILITY EQUITY
( “without” ) ( residual amount )

Total Amount
Quoted Price
Face value x Quoted price
Examples: 101, 105, 95, 98 PV of FACE VALUE XX
PV of PERIODIC INTEREST XX
Effective Rate XX
 GAIN OR LOSS ON RETIREMENT OF
CONVERTIBLE BONDS
LIABILITY EQUITY
(BONDS PAYABLE) (SP-BCP)
RETIREMENT PRICE XX XX GAIN = RP < CV
CARRYING VALUE (XX) (XX)
LOSS = RP > CV
GAIN OR LOSS XX (P/L) XX (EQUITY)

Bonds payable xx
Journal entry: Retirement of Bonds without Equity component Premium on bonds payable xx

Bonds payable xx Loss on retirement of bonds RP > CV xx

SP-Bond conversion privilege xx
Premium on bonds payable xx
SP-Unexercised BCP or Retained earnings xx RP > CV
Loss on retirement of bonds RP > CV xx
Discount on bonds payable xx Discount on bonds payable xx

Cash Total Retirement Price xx Cash Total Retirement Price xx

Gain on retirement of bonds RP < CV xx Gain on retirement of bonds RP < CV xx
SP-Unexercised BCP RP < CV xx

 TOTAL6,000,000
ISSUE PRICE
TOTAL ISSUE PRICE = 5,000,000 x 1.20 = 6,000,000
104

LIABILITY EQUITY
585,116 ( “without” ) ( residual amount )
5,819,904
2,320,758

5,851,160 148,840

NOMINAL EFFECTIVE
AMORTIZATION OF CV OF BONDS
DATE INTERES INTEREST
PREMIUM PAYABLE
(12%) (10%)
INTEREST
1/1/20 - -
EXPENSE - 5,851,160

12/31/20 600,000 585,116 14,884 5,836,276

12/31/21 600,000 583,628 16,372 5,819,904 CV of Bonds Retired:

12/31/22 600,000 581,990 18,010 5,801,894 5,801,894 x 2,000,000/5,000,000 = 2,320,758
T

 RETIREMENT PRICE = 2,080,000

TOTAL ISSUE PRICE = 5,000,000 x 1.20 = 6,000,000
104

TOTAL RETIREMENT PRICE = 2,000,000 x 1.04 = 2,080,000 LIABILITY EQUITY

585,116 ( “without” ) ( residual amount )
5,819,904
2,320,758
280,758
2,040,000 40,000
19,536
( 2,000,000 x 1.02 )

LIABILITY EQUITY
(BONDS PAYABLE) (SP-BCP)
RETIREMENT PRICE 2,040,000 40,000
CARRYING VALUE (2,320,758) (59,536) ( 148,840 x 2/5 )
GAIN 280,758 19,536

Gain on retirement to P/L Increase in SP-Unexercised BCP to EQUITY

 104

3,481,136

Journal entry: DEC. 31, 2022

Bonds payable 2,000,000 NOTE:
Premium on bonds payable 320,758 CV of Remaining Bonds Payable 3,481,136
CV of Remaining SP-BC
SP-Bond conversion privilege 59,536
( 148,840 x 3/5 )
89,304

Cash 2,080,000 CV of Compound Financial

Instrument AFTER Retirement
3,570,440
Gain on retirement of bonds 280,758

SP-Unexercised BCP 19,536

P

“Success does not come from what you

do OCCASIONALLY. It comes from what
you do CONSISTENTLY”

Study hard & Stay Strong!!!

Thank you!!!
Stay Safe and God Bless!!!