On February 1, 2015, Pat Weaver Inc. (PWI) issued 7%, $1,500,000 bonds for $1,80
ID: 2419308 • Letter: O
Question
On February 1, 2015, Pat Weaver Inc. (PWI) issued 7%, $1,500,000 bonds for $1,800,000. PWI retired all of these bonds on January 1, 2016, at 105. Unamortized bond premium on that date was $157,500. How much gain or loss should be recognized on this bond retirement?
$82,500 gain.
$105,000 gain.
$126,000 gain.
$0 gain.
Please list step by step on how to do this problem. Thank you so much
On February 1, 2015, Pat Weaver Inc. (PWI) issued 7%, $1,500,000 bonds for $1,800,000. PWI retired all of these bonds on January 1, 2016, at 105. Unamortized bond premium on that date was $157,500. How much gain or loss should be recognized on this bond retirement?
Explanation / Answer
The bonds were issued for $ 120 ( $ 1,800,000 / $ 1,500,000 X $ 100) and retired for $ 105 Hence, the total loss on the retirement is $ 15 per bond X 15,000 bonds = $ 225,000 Against this, the unamortised bond premium is $ 157,500 Hence, there will be $0 gain on the bond retirement, as the premium falls short of the loss on retirement.
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