Question

A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement

Answer 1

Answer:

$1,500 loss

Explanation:

Calculation for the gain or loss on this retirement

First step is to find the 97% of the bond outstanding $100,000

Par value of bond=97%*$100,000

Par value of bond=$3,000

Second step is to calculate for the gain or loss on the retirement using this formula

Carrying value of bond=Par value of bond-Unamortized discount on bond

Let plug in the formula

Carrying value of bond=$3,000-$4,500

Carrying value of bond= -$1,500

Therefore the loss on this retirement will be $1,500