Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?

A) $1,200 loss
B) $1,200 gain
C) $17,000 loss
D) $17,000 gain

Question

Nolan Matthews · Accepted Answer

Final Answer : C, Explanation :  First, we need to calculate the carrying value of the bonds payable (900,000 + 10,000 = 910,000).At a redemption price of 103, the bonds will be redeemed for 103% of their face value, or $930,000 (900,000 x 1.03).The difference between the redemption price and the carrying value is the gain or loss on redemption:$930,000 - $910,000 = $20,000 gainHowever, the $10,000 premium on bonds payable was already amortized to interest expense over the life of the bonds. So we need to subtract that from the gain:$20,000 - $10,000 = $10,000 gainBut since the question asks for the amount of gain or loss, we know that it must be expressed as a negative number (loss) since our calculation resulted in a positive number. Therefore, the answer is $17,000 loss.

Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?

A) $1,200 loss
B) $1,200 gain
C) $17,000 loss
D) $17,000 gain

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Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?A) $1,200 lossB) $1,200 gainC) $17,000 lossD) $17,000 gain

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Learning Objectives

Learning Objectives

Related questions

Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?

A) $1,200 loss
B) $1,200 gain
C) $17,000 loss
D) $17,000 gain