Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?
To determine the amount of gain or loss on the redemption of bonds, we need to calculate the carrying value of the bonds and compare it to the redemption price.
The carrying value of the bonds is the Bonds Payable balance minus the Premium on Bonds Payable balance. In this case, the carrying value is $900,000 - $10,000 = $890,000.
The redemption price is the face value of the bonds plus any premium or minus any discount. Since the bonds are redeemed at 103, it means the redemption price is 103% of the face value. This can be calculated as follows:
Redemption Price = Face Value x (1 + Redemption Rate)
Redemption Price = Face Value x (1 + 0.03) = Face value x 1.03
Now, since the face value of the bonds is not given, we cannot calculate the exact redemption price. However, we can determine the amount of gain or loss based on the information provided. If the redemption price is greater than the carrying value, there will be a gain. If the redemption price is less than the carrying value, there will be a loss.
In this case, the redemption price is higher than the carrying value since it is 103% of the face value. Therefore, there will be a gain on redemption. However, without knowing the face value of the bonds, we cannot determine the exact amount of gain.
To calculate the exact gain or loss, you would need to know the face value of the bonds. Once you have that information, you can subtract the carrying value from the redemption price to find the gain or loss.