Question

bonds payable has a balance of $900,000 and premium on bonds payable has a balance of $10,000. if the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?

Answer 1

When the issuing corporation redeems the bonds at a premium, there will be a loss on redemption. The amount of loss on redemption is $890,000.

Step-by-step explanation:

When interest rates change, the value of bonds may also change. In this case, if the issuing corporation redeems the bonds at 103, which means at a premium, there will be a loss on redemption. The premium on bonds payable will be deducted from the gain on redemption.

So, the amount of loss on redemption can be calculated as follows:

Amount of loss on redemption = Bonds Payable - Premium on Bonds Payable

= $900,000 - $10,000

= $890,000

Therefore, the amount of loss on redemption is $890,000.