Question

On January 3, 2016, Twig Corporation retired $8,000,000 of bonds by repurchasing them for $8,080,000 (at 101). Assume that the bond interest payment on December 31, 2015 has been made.

The bonds were 10-year bonds and were issued on January 2, 2010. The bonds provide annual interest payments at 8% (coupon rate) with an effective rate of 5%, payable every December 31 (beginning December 31, 2010).   How much was the gain or loss on the retirement of the bonds?   Twig uses the effective interest method of amortizing premiums and discounts. (HINT: The proceeds of the bonds were 9,853,216.)

Show work.

	Amount	Is it a Gain or Loss?
Gain or loss on retirement

Answer 1

Bond Valuation FaceValue of the Bond Issued Premium on Bonds Pavable Coupon Rate Interest Payments Market Rate of Interest 8000000 9853216 1853216 8.0% annually 5% Amortization Sechedule Decrease in Cash Paid Interest Carrying Carrying Value 9853216 9705877 9551171 9388729 9218166 9039074 8851028 Date Interest ense 01-02-2010 31-12-2010 31-12-2011 31-12-2012 31-12-2013 31-12-2014 31-12-2015 640000 640000 640000 640000 640000 640000 492661 485294 477559 469436 460908 451954 147339 154706 162441 170564 179092 188046