Question

TB MC Qu. 14-128 (Algo) On June 30, 2021, K Co. had outstanding... On June 30, 2021, K Co. had outstanding 9%, $15,000,000 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 $65,000. On that date, K acquired all its outstanding bonds on the open market at 99 and retired them. At June 30, 2021, what amount should K Co. recognize as gain on redemption of bonds before income taxes

Answer 1

$215,000

Step-by-step explanation:

Calculation for the amount that K Co. Should recognize as gain on redemption of bonds before income taxes

First step is to find book value of bonds at June 30, 2021

Book value of bonds= ($15,000,000 + $65,000)

Book value of bonds=$15,065,000

Second step is to find the amount of gain on redemption of bonds before income taxes

Gain on redemption of bonds before income taxes=$15,065,000-( 99% × $15,000,000)

Gain on redemption of bonds before income taxes=$15,065,000-$14,850,000

Gain on redemption of bonds before income taxes=$215,000

Therefore the amount that K Co. Should recognize as gain on redemption of bonds before income taxes will be $215,000