Ask Question
19 November, 18:58

Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 97.5, what is the amount of gain or loss on redemption?

+3
Answers (2)
  1. 19 November, 19:05
    0
    gain on redemption 15,000

    the jounral entry will be:

    bond payable 1,000,000 debit

    cash 975,000 credit

    gain on redemption 15,000 credit

    discount on Bonds Payable 10,000 credit

    Explanation:

    the Bond Payable account represent the face value of the bonds 1,000,000

    Thus the call price is 1,000,000 x 97.5/100 = 975,000

    Now, the fair value of the bond will be the net of the bonds payable:

    bond payable 1,000,000

    discount on BP (10,000)

    fair value 990,000

    We compare this against the amount paid:

    990,000 - 975,000 = 15,000 loss

    It will be a gain as we paid 975,000 for a bond worth 990,000
  2. 19 November, 19:12
    0
    Bonds Payable $1000000 Dr

    Gain on redemption $15000 Cr

    Discount on bonds Payable $10000 Cr

    Cash $975000 Cr

    Explanation:

    The face value of bonds payable is $1000000 while they are a discount bond and carry a discount of $10000. The value of bonds is 1000000 - 10000 = 990000.

    The bonds, however, are redeemed at 97.5 which means they are redeemed by paying 97.5% of face value which comes out to be 975000.

    Thus, the difference between their value and the redemption price is the gain as value is greater than the price paid for them at redemption.

    Gain = 990000 - 975000 = $15000
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers