Question

Bargain Company has $1,600,000 of bonds outstanding. The unamortized premium is $21,600. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption? Group of answer choices $5,600 gain $5,600 loss $16,000 gain $16,000 loss

Answer 1

The company realizes a loss of $5,600 on the redemption of the bonds because the book value ($1,621,600) is greater than the redemption price ($1,616,000).

Step-by-step explanation:

The student asked about the gain or loss on the redemption of bonds by Bargain Company. The company has $1,600,000 of bonds outstanding with an unamortized premium of $21,600. If the bonds are redeemed at 101, that means they are being redeemed at 1% more than their face value. To calculate the gain or loss, we need to consider the redemption price and the book value of the bonds.

The redemption price of the bonds is 101% of the face value, which is 1.01 * $1,600,000 = $1,616,000. The book value of the bonds is the face value plus the unamortized premium, which is $1,600,000 + $21,600 = $1,621,600. To find the gain or loss, we subtract the redemption price from the book value: $1,621,600 - $1,616,000 = $5,600.

Since the book value is greater than the redemption price, the company realizes a loss of $5,600 on the redemption of the bonds.

Answer 2

5,600 gain

Step-by-step explanation:

The computation of the gain on the redemption is shown below:

= ($1,600,000 + $21,600) - ($1,600,000 × 101%)

= $1,621,600 - $1,616,000

= $5,600 gain

Hence, the gain on the redemption is $5,600

The same is to be relevant and considered