Question

Jent Corp. purchased bonds at a discount of $10,000. Subsequently, Jent sold these bonds at a premium of $14,000. During the period that Jent held this investment, amortization of the discount amounted to $2,000. What amount should Jent report as gain on the sale of bonds?A. $12,000B. $22,000C. $24,000D. $26,000

Answer 1

Answer: Amount should Jent report as gain on the sale of bonds : $22000

Explanation:

Given:

Bonds purchased at a discount of $10,000

Bonds sold at a premium of $14,000

Amortization of the discount amounted to $2,000.

Therefore, gain on the sale of bonds can be computed as:

Gains = (Cost + Premium) - (Cost - Carrying Cost)

∵ Carrying Cost = Purchasing Cost - Amortization

Carrying Cost = 10000 - 2000

Carrying Cost = $8000

∴ Gains = (10000 + 14000) - (10000 - 8000)

Gains = $22000