A bond is said to be retired early when either the issuer or bondholder redeems the bond in exchange of cash before its original maturity date. It often results in a gain or loss because in many cases, redemption/retirement value is different from the carrying amount.
We will debit bond payable making it go down to zero and credit cash. A bond that is closed out before maturity results in a transaction that is more complex. Bonds that close out before maturity are callable bonds, providing the issuer the option to call the bond as some price in the future.
Retirement of securities refers to the cancellation of stocks or bonds because their issuer has bought them back, or (in the case of bonds) because their maturity date has been reached.
When a bond is retired at the maturity date, there is no gain or loss resulting from the retirement of the bond. Likewise, the company can make the journal entry for bond retirement at maturity date by simply debiting the bond payable account and crediting the cash account.
The retirement of bonds is a financing activity and reported as cash outflow in financing activities section. The issuance of bonds brings cash in the company. It is also a financing activity and reported as cash inflow in financing activities section.
In most cases, because it has become common for companies to refinance, the loss on retirement of bonds account is reported on the income statement as part of other revenues and expenses, similar to the way interest revenues and expenses are reported.
Companies sometimes pay off the bond early due to market conditions, investment opportunities or interest rates. Interest rates are the most common reason why bonds are called in or retired early.
retire (a debt) to pay off the principal on a loan, thereby fulfilling the obligation under the loan contract. Example: Jones arranged to retire her home improvement loan by paying an amount equal to the remaining principal balance.
bonds payable. Reserve for bond retirement is an equity account (see correct answer for an explanation of this). This answer correctly includes the reserve for bond retirement as an equity account in the calculation of average totalequity. However, it uses income from operations instead of net income.
When a bond is matured, the carrying value always equals the face value. Companies sometimes retire their bonds prior to maturity. The main reason is to relieve the pressure of paying interest payments. Some bonds are callable bonds, which means the company may call, or pay off, the bonds at a specified price.
Callable or redeemable bonds are bonds that can be redeemed or paid off by the issuer prior to the bonds' maturity date. When an issuer calls its bonds, it pays investors the call price (usually the face value of the bonds) together with accrued interest to date and, at that point, stops making interest payments.