Redemption of Bonds Reynolds Corporation issued $75,000 face value bonds at a di

Question

Redemption of Bonds Reynolds Corporation issued $75,000 face value bonds at a discount of $2,500. The bonds contain a call price of 103. Reynolds decides to redeem the bonds early when the unamortized discount is $1,750 Required: The redemption price would be 4,000 X compared to the carrying value of $40X which would result in a loss on bond redemption " This would be listed on the income statement and would not be listed with the extraordinary items. It would be considered as part of operating income

Explanation / Answer

The redemption price would be $77,250 compared to the carrying value of $73,250 which would result in a loss on bond redemption . This would be listed on the income statement and would not be listed with the extraordinary items. It would be considered as part of operating income.

Face Value of bond is given = $75,000

Call price is 103 i.e. 103% of original face value

So Redemption price on early would be applicable call price that is $75,000 x 103% = $77,250.

Carrying value of bond will be face value of bond less any unamortized discount.

So it would be $75,000 - $1,750 = $73,250.

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