Question

onds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 97.5, what is the amount of gain or loss on redemption?

Answer 1

Answer:

The correct answer is $15,000.

Explanation:

According to the scenario, the given data are as follows:

Bonds payable balance = $1,000,000

Discount on bonds = $10,000

So,  Balance in bonds = $1,000,000 - $10,000

= $990,000

Rate of bonds = 97.5

So , we can calculate the amount of gain or loss on redemption by using following formula:

First we calculate number of bonds = $1,000,000/$100

= 10,000

Now, we multiply the remaining by bond rate, we get

= 10,000 × 97.5

= 97,500

So, now we can calculate gain by using following method:

Gain = $990,000 - $975,000

= $15,000

Hence, the amount of gain is $15,000.