Question

Calfas Company has $620,000 of bonds outstanding. The unamortized premium is $16,200. If the company redeemed the bonds at 102, what would be the gain or loss on the redemption?

A: $12,400 loss
B: $16,200 gain
C: $16,524 gain
D: $3,800 gain

Answer 1

To find the gain or loss on the redemption of Calfas Company's bonds, the redemption price (102% of $620,000) is subtracted from the carrying value ($620,000 face value + $16,200 premium), resulting in a $3,800 loss.

Step-by-step explanation:

The student asked about the gain or loss on the redemption of Calfas Company's bonds which have an unamortized premium. To calculate this, we need to determine the amount paid for the redemption and compare it to the carrying amount of the bonds. The bonds have an unamortized premium of $16,200, and they are being redeemed at 102% of their face value. Therefore, the redemption price is 102% of $620,000, which is $632,400. The carrying amount of the bonds is the face value plus the unamortized premium, totaling $636,200 ($620,000 face value + $16,200 premium). Thus, the loss on redemption is the carrying amount ($636,200) minus the redemption price ($632,400), which results in a loss of $3,800. The correct answer is D: $3,800 gain.