Question

A corporation issued 8% bonds with a par value of $1,000,000, receiving a $20,000 premium. On the interest date 5 years later, after the bond interest was paid and after 40% of the premium had been amortized, the corporation called the bonds at $990,000. The gain or loss on this retirement is:

Answer 1

Answer:

$22,000 gain

Explanation:

Calculation for the gain or loss on this retirement

Using this formula

Carrying value of bonds = Par value + Unamortized premium - Retirement purchased price

Let plug in the formula

Carrying value of bonds =$1,000,000+(100%-40%*$20,000)-$990,000

Carrying value of bonds =$1,000,000+(60%*$20,000)-$990,000

Carrying value of bonds =$1,000,000+$12,000-$990,000

Carrying value of bonds =$22,000 gain

Therefore the gain on this retirement is:$22,000 gain