Question

Pharoah Company has $1520000 of bonds outstanding. The unamortized premium is $21900. If the company redeemed the bonds at 101, what would be the gain or loss on the redemption?
a) $6700 gain
b) $6700 loss
c) $15200 gain
d) $515200 loss

Answer 1

Answer: b) $6,700 loss

Explanation:

The bonds were redeemed at 101 so Pharaoh Company paid;

= 1,520,000 * 101/100

= $‭‭1,535,200‬

Gain on bond retirement (loss) = Bond Value + Unamortized premium - Cash paid

= 1,520,000 + 21,900 - ‭1,535,200‬

= $6,700