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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Bonds Payable has a balance of $5,000,000, and Discount on Bonds Payable has a balance of $50,000. If the issuing corporation redeems the bonds at 98, is there a gain or loss on the bond redemption?

To determine

Bonds: Bonds are long-term promissory notes that are represented by a company while borrowing money from investors to raise fund for financing the operations.

Bonds Payable: Bonds payable are referred to long-term debts of the business, issued to various lenders known as bondholders, generally in multiples of $1,000 per bond, to raise fund for financing the operations.

To compute: Gain or loss on the redemption of the bonds payable.

Explanation

Determine the gain or loss on the redemption of the bonds payable.

Step 1: Calculate carrying amount of bonds payable on the redemption date.

  Carrying amount of bonds paayble = (Face value  Balance of Discount on bonds payable)   =$5,000,000$150,000 =$4,850,000

Step 2: Determine the amount of cash paid to redeem the bonds payable.

Cash paid to redeem the bonds}= Face value×Market price=$5,000,000×0

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