Question

, Inc. retires a $15 million (face value) bond issue when the carrying value of the bonds is $13 million, but the market value of the bonds is $16 million. The entry to record the retirement will include: Select one: a. A gain of $2 million b. A loss of $2 million c. A loss of $4 million d. A gain of $4 million e. A loss of $3 million

Answer 1

Answer:

Loss on bond redemption  = $3 million

Explanation:

Given:

Face value = $15 million

Carrying value = $13 million

Cash paid = $16 million

Find:

Profit / loss

Computation:

Loss on bond redemption  = Carrying value - Cash paid

Loss on bond redemption  = $13 million - $16 million

Loss on bond redemption  = $3 million

Answer 2

The entry to record the retirement will include option E. A loss of $3 million. To understand the calculation see below.

Bond Redemption

We are provided with the information about :

Face value = $15 million

Carrying value = $13 million

Cash paid = $16 million

We need to find profit or loss. The difference between Carrying value and Cash paid is the profit or loss.

Carrying Value - Cash paid

$13 million - $16 million

-$3 million, the answer is negative hence there is loss.

Therefore, the correct option is E. A loss of $3 million.

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