On February 1, 2015 Gaslight Corp issued 12 percent $2,000,000 face value, ten-y

Question

On February 1, 2015 Gaslight Corp issued 12 percent $2,000,000 face value, ten-year bonds for $2,234,000 plus accrued interest. The bonds are dated November 1, 2014 and interest is payable on May 1 and November 1. Gaslight reacquired all of these bonds at 102 on May 1, 2018 and retired them. Unamoritized bond premium on that date was $156,000. Ignoring the income tax effect, what was Gaslights gain on the bond retirement?
A) $116,000 B) $194,000 C) $234,000 D) $236,000 On February 1, 2015 Gaslight Corp issued 12 percent $2,000,000 face value, ten-year bonds for $2,234,000 plus accrued interest. The bonds are dated November 1, 2014 and interest is payable on May 1 and November 1. Gaslight reacquired all of these bonds at 102 on May 1, 2018 and retired them. Unamoritized bond premium on that date was $156,000. Ignoring the income tax effect, what was Gaslights gain on the bond retirement?
A) $116,000 B) $194,000 C) $234,000 D) $236,000 On February 1, 2015 Gaslight Corp issued 12 percent $2,000,000 face value, ten-year bonds for $2,234,000 plus accrued interest. The bonds are dated November 1, 2014 and interest is payable on May 1 and November 1. Gaslight reacquired all of these bonds at 102 on May 1, 2018 and retired them. Unamoritized bond premium on that date was $156,000. Ignoring the income tax effect, what was Gaslights gain on the bond retirement?
A) $116,000 B) $194,000 C) $234,000 D) $236,000

Explanation / Answer

When bonds were issued for 2234,000, there is actual bond premium of 234,000 ( i.e 2234000 - 2000,000). Over the period it was amoritized and remaining unamoritized bond premium is 156,000.( this amount represent gain )

When bond are retired ........ there is 2% call premium = 2000,000 * 0.02 = 40000 ( this amount represent loss to the company )

So, gain on retirement = 156,000 - 40000 = 116,000 ......... Option - A

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