On January 1, 2014, Benbrook Company issued bonds with a face value of $50,000.
ID: 2450938 • Letter: O
Question
On January 1, 2014, Benbrook Company issued bonds with a face value of $50,000. The bonds mature in five years, and pay interest annually at a stated rate of 10%. Since the market rate at the time of the issue was 12%, the bonds were sold at a discount; the actual issue price was $46,395.
On January 1, 2016, Benbrook decides to redeem the bonds payable at the specified redemption price of 101.
What is the carrying value of the bonds on the redemption date?
$50,000
$47,598
$46,962
$46,395
none of the above
Refer to the information above for Benbrook Corporation.
How much gain or loss with the company recognize on the bond redemption?
$500 loss
$2,902 loss
$3,538 loss
$3,605 loss
none of the above
a.$50,000
b.$47,598
c.$46,962
d.$46,395
e.none of the above
Explanation / Answer
Total Discount = 50,000 - 46,395 = $3,605
Discount to be amortised every year = $3,605 / 5 years = $721
Total Amount of unamortised discount on redemption date = $721 * 3 = $2,163
Carrying Value on redemption date = $50,000 - $2,163 = $47,837
ans. e. none of the above
Gain or loss
Total Redemption Value = 50000 * 101 / 100 = $50,500
Total loss = 50,500 - 47,837 = $2,663
ans. e. none of the above
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