Question

ABC Corporation retired $250,000 face value, 12% bonds on June 30, 2018 at a market price of 102. The carrying value of the bonds at the early retirement date was $238,500. The bonds pay semi-annual interest and the interest payment due on June 30, 2018 had been made and recorded prior to the retirement of the debt.

Which direction have market interest rates moved since the time these bonds were originally issued?

A. Effective Interest rates have increased

B. Effective interest rates have decreased

C. Interest rates have remained unchanged

D. Not enough information to determine

Then, determine the amount of the gain or loss upon retirement.

A. $16,500 loss

B. $11,500 loss

C. $4,770 gain

D. $6,730 gain

Answer 1