Asked by Yessenia Castro on Jun 30, 2024
Verified
Lowe Company has $1500000 of bonds outstanding. The unamortized premium is $19600. If the company redeemed the bonds at 101 what would be the gain or loss on the redemption?
A) $4600 gain
B) $4600 loss
C) $15000 gain
D) $15000 loss
Unamortized Premium
The portion of the bond premium that has not yet been expensed to interest expense over the bond's life.
Redemption
The process of paying off or buying back something, such as repaying a bond at maturity or reclaiming ownership rights by paying a specific amount.
Bonds
Long-term debt securities issued by corporations and governments to raise funds, paying periodic interest and principal at maturity.
- Understand the computation and implications of bond premium and discount amortization.
- Grasp the journal entry recording of bond issuance and retirement and its impact on financial statements.
Verified Answer
ZK
Zybrea KnightJul 04, 2024
Final Answer :
A
Explanation :
The gain on redemption is calculated by comparing the redemption price with the carrying amount of the bonds. The carrying amount is the face value plus unamortized premium, which is $1,500,000 + $19,600 = $1,519,600. The redemption price is 101% of the face value, which is $1,500,000 * 1.01 = $1,515,000. Therefore, the gain is the carrying amount minus the redemption price, which is $1,519,600 - $1,515,000 = $4,600.
Learning Objectives
- Understand the computation and implications of bond premium and discount amortization.
- Grasp the journal entry recording of bond issuance and retirement and its impact on financial statements.