Question

Tony Hawk's Adventure (THA) issued callable bonds on January 1, 2021. THA's accountant has projected the following amortization schedule from issuance until maturity:

Date Cash Paid Interest
Expense Increase in
Carrying Value Carrying
Value
01/01/2021 $ 265,788
06/30/2021 $ 11,200 $ 13,289 $ 2,089 267,877
12/31/2021 11,200 13,394 2,194 270,071
06/30/2022 11,200 13,504 2,304 272,375
12/31/2022 11,200 13,619 2,419 274,794
06/30/2023 11,200 13,740 2,540 277,334
12/31/2023 11,200 13,866 2,666 280,000

THA buys back the bonds for $267,861 immediately after the interest payment on 12/31/2021 and retires them. What gain or loss, if any, would THA record on this date?

$2,210 gain.

$2,073 loss.

$12,139 gain.

No gain or loss.

Answer 1

$2,210 gain.

Step-by-step explanation:

The computation of the gain or loss amount as on record on this date is shown below:

= Carrying value after the interest payment as on Dec 31 2021 - buyback amount

= $270,071 - $267,861

= $2,210 gain

We simply deduct the buyback amount from the carrying value so that the gain could arrive and that to be recorded on this date