On June 30, 2013, K Co. had outstanding 9%, $16,500,000 face value bonds maturin
ID: 2645844 • Letter: O
Question
On June 30, 2013, K Co. had outstanding 9%, $16,500,000 face value bonds maturing on June 30, 2018. Interest is payable semiannually every June 30 and December 31. On June 30, 2013, after amortization was recorded for the period, the unamortized bond premium and bond issue costs were $56,000 and $165,000, respectively. On that date, K acquired all its outstanding bonds on the open market at 99 and retired them. At June 30, 2013, what amount should K recognize as gain on redemption of bonds before income taxes?
On June 30, 2013, K Co. had outstanding 9%, $16,500,000 face value bonds maturing on June 30, 2018. Interest is payable semiannually every June 30 and December 31. On June 30, 2013, after amortization was recorded for the period, the unamortized bond premium and bond issue costs were $56,000 and $165,000, respectively. On that date, K acquired all its outstanding bonds on the open market at 99 and retired them. At June 30, 2013, what amount should K recognize as gain on redemption of bonds before income taxes?
Explanation / Answer
. Carrying value of bonds at June 30, 2013 = 16,500,000 + 56000 = 16,556,000
Redemption Price = 16,500,000*99% = $ 16,335,000
Gain = 221,000
The remaining bond issue cost is written off as a loss and netted with the gain or loss on redemption
Net gain on redemption of bonds before income taxes = 221000 - 165000
Net gain on redemption of bonds before income taxes = $ 56,000
Answer
a) $56,000.
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