Question

On June 30, 2018, K Co. had outstanding 10%, $19,000,000 face value bonds maturing on June 30, 2023. Interest is payable semiannually every June 30 and December 31. On June 30, 2018, after amortization was recorded for the period, the unamortized bond premium was $69,000. On that date, K acquired all its outstanding bonds on the open market at 99 and retired them. At June 30, 2018, what amount should K Co. recognize as gain on redemption of bonds before income taxes?

Answer 1

K Co would recognize $259,000 as gain on redemption of bonds before income taxes.

Step-by-step explanation:

Given information available to us -

Face value of the bond@10% = $19,000,000 (on June 30,2018)

Unamortized bond premium = $69,000

Interest is payable semi annually on every June 30 and December 31

On June 30 K acquired all outstanding bonds at 99% from the open

market and retired them.

So for calculating the gain the first would be to calculate the face value of the bonds on June 30, 2018, which would be equal to =

Face value of the bond + unamortized bond premium

Book value of the bonds = $19,000,000 + $69,000

= $19,069,000

and now we will subtract the redemption price from the book value to see how much gain will come,

GAIN= Book value of bonds - 99% of the face value of the bonds

= $19,069,000 - $18,810,000

= $259,000