Homework Answers
| WORKING NOTES: 1 | ||||
| Par Value of the bonds = | $ 5,30,000 | |||
| Issue price of the bond= | $ 5,58,500 | |||
| Premium received | $ 28,500 | |||
| Coupon amount @ 8% = | $ 42,400 | |||
| Total life of the Bonds = | 10 Years | |||
| Amortization per year of Premium received = $ 28,500 / 10 = | $ 2,850 | |||
| WORKING NOTES: 2 | ||||
| CALCULATION OF BOOK VALUE OF BONDS AS ON JANAUARY 01, 2021 | ||||
| Par Value of the Bond (A) | $ 5,30,000 | |||
| Add: Balance in premium account | ||||
| Premium received on issuance = | 28500 | |||
| Less: Amortizatio of premium in 2 years = | $ 5,700 | |||
| Balance in premium account (B) | $ 22,800 | |||
| Book Value (A+B) | $ 5,52,800 | |||
| SOLUTION: | ||||
| CALCULATION OF GAIN OR LOSS ON CALL OF BONDS | ||||
| Book Value of Bond= | $ 5,52,800 | |||
| Less: | ||||
| Call price of Bond = $ 530,000 X 102% = | $ 5,40,600 | |||
| Gain on call of bond | $ 12,200 | |||
| ANSWER = OPTION 2 = $ 12,200 GAIN | ||||
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