Question

On December 31, 2008, Pico acquired $250,000 par value of the outstanding $1,000,000 bonds of its subsidiary, Sico, in the market for $200,000. On that date, Sico had a $100,000 premium on its total bond liability. Which one of the following is the amount of premium or discount on Pico's investment in Sico's bonds?

Answer 1

$50,000 discount

Step-by-step explanation:

Given that

Par value = $250,000

The value of outstanding bonds = $1,000,000

Market price = $200,00

Premium = $100,000

Since we see that the par value exceeded than the market price which reflect that the bond is issued for discount for $50,000 i.e come from

= $200,000 - $250,000

= $50,000 discount

And if the par value is not exceeded than the market price that reflect that the bond is issued for premium