On June 30, 2021, K Co. had outstanding 8%, $20,000,000 face value bonds maturing on June...
On June 30, 2021, K Co. had outstanding 8%, $20,000,000 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 $70,000. On that date, K acquired all its outstanding bonds on the open market at 98 and retired them. At June 30, 2021, what amount should K Co. recognize as gain on redemption of bonds before income taxes?
Multiple Choice
-
$270,000.
-
$108,000.
-
$470,000.
-
$400,000.
Homework Answers
Solution:
Carrying value of bond on June 30, 2021 = $20,000,000 + $70,000 = $20,070,000
Retirement value = $20,000,000 * 98% = $19,600,000
Gain on redemption of bonds = $20,070,000 - $19,600,000 = $470,000
Hence 3rd option is correct.
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