Question

Bonds payable has a balance of $900,000.00, and premium on bonds payable has a balance of $20,000.00. If the issuing corporation redeems the bonds at $102.00, what is the amount of gain or loss on redemption?

A) $10,000 gain
B) $10,000 loss
C) $20,000 gain
D) $20,000 loss

Answer 1

When the issuing corporation redeems the bonds at $102.00, there will be a loss of $19,898.00.

Step-by-step explanation:

When the issuing corporation redeems the bonds at $102.00, the gain or loss on redemption can be calculated by comparing the amount redeemed with the carrying value of the bonds payable. The carrying value is the sum of the bonds payable balance and the premium on bonds payable balance, which in this case is $920,000.00 ($900,000.00 + $20,000.00).

To calculate the gain or loss:

1. If the redeemed amount is higher than the carrying value, there will be a gain.
2. If the redeemed amount is lower than the carrying value, there will be a loss.
3. In this case, since $102.00 is less than $920,000.00, there will be a loss of $19,898.00 ($920,000.00 - $102.00).