Question

On June 30, 2021, K Co. had outstanding 10%, $17,500,000 face value bonds maturing on June 30, 2026. Interest is payable semiannually every June 30 and December 31. On June 30, 2021, after amortization was recorded for the period, the unamortized bond premium was $57,000. On that date, K acquired all its outstanding bonds on the open market at 98 and retired them. At June 30, 2021, what amount should K Co. recognize as gain on redemption of bonds before income taxes?

Answer 1

Gain = $407,000

Step-by-step explanation:

Carrying value of bonds at June 30, 2021 $17,557,000

($17,500,000 + $57,000)

Less repurchase price: 98% x $17,500,000 = $17,150,000

Gain = $407,000

Therefore at June 30, 2021, the amount that K Co should recognize as gain on redemption of bonds before income taxes is $407,000