Bonds Payable has a balance of $1,010,000 and Discount on Bonds Payable has a balance of...

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Bonds Payable has a balance of $1,010,000 and Discount on Bonds Payable has a balance of...

Bonds Payable has a balance of $1,010,000 and Discount on Bonds Payable has a balance of $12,120. If the issuing corporation redeems the bonds at 98, what is the amount of gain or loss on redemption?

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Answer 1

Answer #1

Ans.	Let's say the par value of the bonds is $100.
	Now we need to calculate the number of bonds issued/sold.

	Number of bonds issued (sold) = Total bonds at par value / Par value of the bonds
		$1,010,000 / $100
		10,100 bonds

	Carrying value of bonds = Issue price - Discount on bonds payable
		$1,010,000 - $12,120
		$997,880

	Redemption value of bonds = Number of bonds issued * Redemption price
		10,100 * $98
		$989,800

	Gain on redemption = Carrying value of bonds - Redemption value of bonds
		$997,880 - $989,800
		$8,080

	Carrying value > Redemption value = Gain on redemption
	Carrying value < Redemption value = Loss on redemption

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Answer 2

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