Asked by Chintan Kothari on Jul 07, 2024
Verified
Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $15,500. If the issuing corporation redeems the bonds at 98 1/2, what is the amount of gain or loss on redemption?
A) $500 loss
B) $15,500 loss
C) $15,500 gain
D) $500 gain
Discount on Bonds Payable
The gap between the nominal value of a bond and the price it is sold at when this price is lower than the bond's nominal value.
Redeems
The act of repaying or buying back something, such as a company repurchasing its own shares or a bond issuer paying back the principal at maturity.
- Gain an understanding of the financial accounting procedures for callable bonds and their redemption.
Verified Answer
ZK
Zybrea KnightJul 12, 2024
Final Answer :
A
Explanation :
Loss on redemption = Redemption value of bonds + Balance of Discount on Bonds Payable- Balance of Bonds Payable = ($1,000,000 × 0.985) + $15,500 - $1,000,000 = $985,000 + $15,500 - $1,000,000 = $500
Loss on redemption = Redemption value of bonds + Balance of Discount on Bonds Payable- Balance of Bonds Payable = ($1,000,000 × 0.985) + $15,500 - $1,000,000 = $985,000 + $15,500 - $1,000,000 = $500
Learning Objectives
- Gain an understanding of the financial accounting procedures for callable bonds and their redemption.