X2 Issued the bonds: X2 issued callable bonds on January 1, 2015. The bonds pay
ID: 2468767 • Letter: X
Question
X2 Issued the bonds: X2 issued callable bonds on January 1, 2015. The bonds pay interest annually on December 31 each year. X2’s accountant has projected the following amortization schedule from issuance until maturity:
DATE Cash Interest Decrease in Carrying
Paid Expense Carrying Value Value
1/1/2015 $104,212
12/31/2015 $7,000 $6,253 $747 $103,465
12/31/2016 7,000 6,208 792 $102,673
12/31/2017 7,000 6,160 840 $101,833
12/31/2018 7,000 6,110 890 $100,943
12/31/2019 7,000 6,057 943 $100,000
X2 buys back the bonds for $103 immediately after the interest payment on 12/31/2016 and retires them. what gain or loss, if any, would X2 record on this date?
Question 24 options:
$1202 loss
no gain or loss
$327 loss
$3,000 gain
$1202 loss
no gain or loss
$327 loss
$3,000 gain
Explanation / Answer
As per the schedule given, the carring value of the Bonds as on 31.12.2016, after payment of Interest is $102,673.
X2 is retiering the debt at $103 per unit i.e. $103,000, therefore its paying extra (103,000-102,673) = $327
Answer is "$327 loss
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