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

Answer:gain on retirement before income taxes=$50,000

Step-by-step explanation:

Account and Particulars

Carrying value of bond = $4,000,000

Subtract:

Unamortized bond discount $40,000

bond issue costs $30,000

Overall net amount $$4,000,000 -( $40,000+$30,000) = $3,930,000

But

The paid amount at retirement = $4,000,000 x 97%= $3,880,000

Therefore gain on retirement before income taxes =$3,930,000- $3,880,000 = $50,000