Question

Ivo Company has a $10 million face value bond issue outstanding. These bonds include a call option that permits Ivo to redeem the bonds at any time for 101% of par. These bonds were issued at a premium and have a carrying value of $10,200,000. If Ivo calls the bonds, its income statement will reflect:_---.

a. neither a gain nor a loss on redemption.
b. a gain on redemption.
c. a loss on redemption.

Answer 1

b. a gain on redemption.

Step-by-step explanation:

Given that

The face value of the bond is $10 million

The bond should be redeemed at 101% of par

Also it is issued for a premium and its carrying value is $10,200,000

Since the carrying value is more than the face value that means the income statement represent the gain on redemption of the bonds

Therefore the option b is correct