Redemption of Bonds HARVARD Company issued $250,000 face value bonds at a discou

Question

Redemption of Bonds

HARVARD Company issued $250,000 face value bonds at a discount of $5,500. The bonds contain a call provision of 102. HARVARD decides to redeem the bonds due to a significant decline in interest rates. On that date, HARVARD had amortized only $1,500 of the discount.

Required:

1. Calculate the gain or loss on the early redemption of the bonds. Round your answer to the nearest whole dollar.
$  - Select your answer -GainLossItem 2

2. Calculate the gain or loss on the redemption assuming that the call provision is 99 instead of 102. Round your answer to the nearest whole dollar.
$  - Select your answer -GainLossItem 4

3. Select where the gain or loss should be presented on the financial statements.
- Select your answer -Income StatementBalance SheetItem 5

4. Why is the call price is normally higher than 100?

Bonds are redeemed early only if it is advantageous to the - Select your answer -investorsissuing firmItem 6 . To compensate the - Select your answer -investorsissuing firmItem 7  for forgone interest, as well as for the costs and inconvenience involved, the call price is normally set at an amount higher than 100.

Explanation / Answer

Redemption of Bonds HARVARD Company issued $250,000 face value bonds at a discou

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