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 t bonds at 97.5, what is the amount of gain or loss on redemption?
a. $25,000 loss
b. $ 10,000 loss
c. $25,000 gain
d. $15,000 gain

Answer 1

Answer:

d. $15,000 gain

Explanation:

For computing, the loss or gain on redemption, first we have to compute the redeemable value of the bond which is shown below:

= Bond payable balance × rate of bond

= $1,0000,000 × 0.975

= $975,000

And, after the discount, the balance of bond payable would be

= $1,000,000 - $10,000

= $990,000

SO, the difference would be

= $990,000 - $975,000

= $15,000 gain