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?
is it 1200 loss?
To calculate the amount of gain or loss on redemption, we need to determine the carrying value of the bonds and compare it to the redemption amount.
The carrying value of the bonds is calculated by subtracting the balance of the Premium on Bonds Payable from the Bonds Payable balance:
Carrying Value = Bonds Payable - Premium on Bonds Payable
Carrying Value = $900,000 - $10,000
Carrying Value = $890,000
To find the redemption amount, we need to multiply the Carrying Value by the redemption percentage (103% or 1.03):
Redemption Amount = Carrying Value * Redemption Percentage
Redemption Amount = $890,000 * 1.03
Redemption Amount = $916,700
The gain or loss on redemption is determined by comparing the Redemption Amount to the Carrying Value. If the Redemption Amount is higher than the Carrying Value, there will be a gain. If the Redemption Amount is lower, there will be a loss.
In this case:
Gain/Loss on Redemption = Redemption Amount - Carrying Value
Gain/Loss on Redemption = $916,700 - $890,000
Gain/Loss on Redemption = $26,700
Therefore, the amount of gain or loss on redemption is $26,700.