Question

because of changing market conditions, piggly wiggly made a decision to redeem $900,000 of its bonds prior to maturity. the bonds originally sold for $952,250 and the unamortized premium at the time of redemption was $28,100. piggly wiggly’s bond certificates indicated that the bonds could be retired early at 104. determine the gain or loss on the bond retirement.

Answer 1

The gain on the bond retirement is $36,976.

Step-by-step explanation:

To determine the gain or loss on the bond retirement, we need to calculate the carrying value of the bonds at the time of redemption. The carrying value can be calculated by subtracting the unamortized premium from the face value of the bonds. In this case, the face value of the bonds is $952,250 - $28,100 = $924,150. Next, we need to compare the carrying value with the redemption price, which is 104% of the face value. The redemption price is $924,150 * 1.04 = $961,126.

To calculate the gain or loss, we subtract the redemption price from the carrying value: $961,126 - $924,150 = $36,976. Since the redemption price is higher than the carrying value, there is a gain of $36,976 on the bond retirement.

Answer 2

Piggly Wiggly experienced a loss of $7,900 on the early retirement of their bonds, calculated by subtracting the carrying amount of $928,100 (bond value plus unamortized premium) from the redemption amount of $936,000.

Step-by-step explanation:

The question pertains to the redemption of bonds prior to maturity under changing market conditions, specifically concerning Piggly Wiggly's decision to redeem $900,000 worth of its bonds. Since the bonds were redeemed at 104% of their face value, and there was an unamortized premium, we need to calculate the gain or loss on the retirement of these bonds.

To find the loss or gain, we perform the following calculations:

• Calculate the redemption amount: $900,000 * 104% = $936,000
• Calculate the carrying amount: $900,000 + $28,100 (unamortized premium) = $928,100
• Subtract the carrying amount from the redemption amount to find the loss: $936,000 - $928,100 = $7,900

Piggly Wiggly incurs a loss of $7,900 on the bond retirement.