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A corporation issued 8% bonds with a par value of $1,240,000, receiving a $68,000 premium. On...

A corporation issued 8% bonds with a par value of $1,240,000, receiving a $68,000 premium. On the interest date 5 years later, after the bond interest was paid and after 40% of the premium had been amortized, the corporation purchased the entire issue on the open market at 99 and retired it. The gain or loss on this retirement is:

Multiple Choice

  • $12,400 gain.

  • $53,200 gain.

  • $53,200 loss.

  • $0.

  • $12,400 loss.

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Answer #1
Correct option is: $53,200 gain
Workings:
Computation of gain or loss on retirement of bonds:
Premium received on issue = $             68,000
Less: Amortization of premium ($68000 X 40%) = $             27,200
Unamortized premium = $             40,800
Par Value of bonds = $       12,40,000
Add: Unamortized premium = $             40,800
Less: Redemption Value ($1240000*99/100) = $       12,27,600
Gain on redemption = $             53,200
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