Question

Hogan Company has $1,000,000 of bonds outstanding. The unamortized premium is $14,400. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?
a. $10,000 gain
b. $4,400 loss
c. $10,000 loss
d. $4,400 gain

Answer 1

Answer:

d. $4,400 gain

Explanation:

The computation of gain or loss on the redemption is shown below:

= (Outstanding bonds value + unamortized premium) - (Outstanding bonds value × bond redeemed percentage)

= ($1,000,000 + $14,400) - ($1,000,000 × 101%)

= ($1,014,400) - ($1,010,000)

= $4,400 gain

Simply we take the difference between the total amount of bond including premium and redemption value so that the correct gain or loss should be recorded