Question

Washington inc. issued $705,000 of 6%, 20-year bonds at 98 on January 1, 2009. Through January 1, 2017, Washington amortized $8,200 of the bond discount. On January 1, 2017. Washington Inc. retired the bonds at 102 (after making the interest payment on that date). What is the gain or loss that Washington Inc. would report for the retirement of this bond?

Answer 1

Answer:

$20,000

Explanation:

Bond discount at the issuance of bond:

= Worth of Bonds issued -  [(Worth of Bonds issued ÷ 100) × Issue price]

= 705,000 - [($705,000 ÷ 100) × 98]

= $705,000 - $690,900

= $14,100

Bond Payable = $705,000

Unamortized bond discount:

= Bond discount at the issuance of bond - Amortized amount

= $14,100 - $8,200

= $5,900

Redemption Value of Bond = Retired price of bonds × 7,050

                                              = 102 × 7,050

                                              = $719,100

Loss on retirement on Bond:

= Redemption Value of Bond - (Worth of Bonds issued -  Unamortized bond discount)

= 719,100 - (705,000 - 5,900)

= 719,100 - 699,100

= $20,000