Question

On February 1, 2020, Pat Weaver Inc. (PWI) issued 7%, $1,200,000 bonds for $1,500,000. PWI retired all of these bonds on January 1, 2021, at 106. Unamortized bond premium on that date was $127,200. How much gain or loss should be recognized on this bond retirement

Answer 1

$55,200 gain

Step-by-step explanation:

Calculation to determine How much gain or loss should be recognized on this bond retirement

First step is to determine the Book value on date of sale

Book value on date of sale=$1,200,000+$127,200

Book value on date of sale=$1,327,200

Second step is to calculate the Retired value of bonds

Retired value of bonds =$1,200,000*106

Retired value of bonds=$1,272,000

Now let determine the Gain on bonds retirement

Using this formula

Gain on bond retirement=Book value on date of sale-Retired value of bonds

Let plug in the formula

Gain on bond retirement=$1,327,200-$1,272,000

Gain on bond retirement=$55,200 gain

Therefore the amount of gain that should be recognized on this bond retirement will be $55,200 gain