On January 1, 2017, Swen paid $184,000 for $200,000 of the 8%, 20-year bonds of Penn Corporation, issued on January 1, 2013, at

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2 years ago

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On January 1, 2017, Swen paid $184,000 for $200,000 of the 8%, 20-year bonds of Penn Corporation, issued on January 1, 2013, at

par. The bonds are held as an investment. Determine the gain and the character of the gain if the bonds are sold on January 1, 2019, for a. $191,000 b. $185,750 C. $183,000

Business

1 answer:

zimovet [89] · Answer 1 · 2023-05-01T09:49:06+03:00

The determination of the gain and the character of the gain if the Penn Corporation bonds are sold by Swen on January 1, 2019, for the proceeds of each sale is as follows:

(a) (b) (c)

Sales proceeds $191,000 $185,750 $183,000

Carrying value $185,600 $185,600 $185,600

Capital gain (loss) $5,400 $150 ($2,600)

<h3>What is the carrying value of bonds?</h3>

The carrying value of a bond is the net amount between the bond's face value plus (minus) any unamortized premiums or discounts.

The carrying value is the book value of the bond.

When a bond receivable is sold, capital gain or loss is realized from the sale, which gives rise to capital gain tax.

<h3>Data and Calculations:</h3>

Bond's price = $184,000

Face value of bonds receivable = $200,000

Premium received = $16,000 ($200,000 - $184,000)

Interest rate = 8%

Maturity period = 20 years

Payment date = January 1, 2017

Straight-line amortization of premium = $800 ($16,000/20)

Carrying value after two years, January 1, 2019, = $185,600 ($184,000 + $1,600)

(a) (b) (c)

Sales proceeds $191,000 $185,750 $183,000

Carrying value $185,600 $185,600 $185,600

Capital gain (loss) $5,400 $150 ($2,600)

Carrying value:

Face value $200,000

Unamortized premium $14,400 ($16,000 - $1,600)

Carrying value $185,600

Learn more about capital gain from bond sales at brainly.com/question/19422959