Question

Bonds Payable has a balance of $1,000,000, and Discount on Bonds Payable has a balance of $12,500. If the issuing corporation redeems the bonds at 99, what is the amount of gain or loss on redemption? a.$22,500 gain b.$2,500 loss c.$2,500 gain d.$22,500 loss

Answer 1

Answer:

The correct answer is B,  a loss of $2500

Explanation:

In calculating whether a loss or gain is recorded upon redemption of the bond ,it is very pertinent to compare proceeds payable to bondholders through redemption and the book value of the bond

Proceeds                                            $1000000*$99/$100=$990,000

Carrying value                                     ($1000000-$12500)=$987500

Loss on redemption                                                                  $2500

This means that amount paid to bondholders is more than the amount realized when bond was sold initially.