Question

On June 30, year 8, Adonis Co. had outstanding 4%, $4,000,000 face value bonds, originally issued at 98, maturing on June 30, year 13. Interest was payable semiannually every June 30 and December 31. Adonis did not elect the fair value option for reporting its financial liabilities. On June 30, year 8, after amortization was recorded for the period, the unamortized bond discount and bond issue costs were $40,000 and $30,000 respectively. On that date, Adonis acquired all its outstanding bonds on the open market at 97 and retired them. At June 30, year 8, what amount should Adonis recognize as gain before income taxes on redemption of bonds

Answer 1

gain on redemption 110,000

Step-by-step explanation:

bonds payable 4,000,000 debit

bond issuance cost 30,000 debit

discount on bonds 40,000 credit

cash 3,880,000 credit

gain on redemption 110,000 credit

book value of the bonds:

face value 4,000,000

discount (40,000)

issuance cost 30,000

total 3,990,000

acquisition value:

4,000,000 x 97% = 3,880,000

redemption gain/loss

book value less redemption price

3,990,000 - 3,880,000 = 110,000 gain on redemption