Question

On January​ 1, 2018​, Plummer Company issued $250,000 of 4​%, five​-year bonds payable at 102. Plummer Company has extra cash and wishes to retire the bonds payable on January​ 1, 2019​, immediately after making the second semiannual interest payment. To retire the​ bonds, Plummer pays the market price of 90.1.What is Plummer Company's carrying amount of the bonds payable on the retirement​ date?2.How much cash must Plummer Company pay to retire the bonds​payable?3.Compute Plummer Company's gain or loss on the retirement of the bonds payable.

Answer 1

1. Carrying amount = $250,000

2. Cash paid to retire bond = $225,000

3. Gain on the retirement = $25,000

Step-by-step explanation:

1. What is Plummer Company's carrying amount of the bonds payable on the retirement​ date?

Carrying amount of a bond payable on the retirement​ date is its par value amount.

Therefore, Plummer Company's carrying amount of the bonds payable on the retirement​ date is $100 par value for 2,500 units with a total carrying amount of $250,000.

2. How much cash must Plummer Company pay to retire the bonds​payable?

Units of bond = $250,000/$100 = 2,500 units.

Since Plummer pays the market price of $90 to retire the​ bonds, cash amount Plummer Company must pay to retire the bonds​ payable can be calculated as follows:

Cash paid to retire bonds = 25,000 * $90 = $225,000

3.Compute Plummer Company's gain or loss on the retirement of the bonds payable.

Gain (loss) = Carrying amount - Cash paid on retirement = $250,000 - $225,000 = $25,000