Question

Simons company has $400,000 of bonds outstanding. the unamortized premium is $7,400. if the company redeemed the bonds at 101, what would be the gain or loss on the redemption?select answer from the options below

O $7,400 loss
O $7,474 gain
O $3,400 gain
O $3,400 loss

Answer 1

The gain on the redemption of Simon's company bonds is $11,400.

Step-by-step explanation:

To calculate the gain or loss on the redemption of bonds, we need to compare the carrying value (bonds outstanding minus unamortized premium) with the redemption price. In this case, Simon's company has $400,000 bonds outstanding and $7,400 of unamortized premium. The carrying value would be $400,000 - $7,400 = $392,600. If the company redeemed the bonds at 101, the redemption price would be $400,000 x 101% = $404,000. To calculate the gain or loss, we subtract the carrying value from the redemption price: $404,000 - $392,600 = $11,400.

Since the carrying value is less than the redemption price, there would be a gain of $11,400 on the redemption of the bonds. Therefore, the correct answer is $11,400 gain, which is not listed among the given options.