On June 30, Year 7, King had an outstanding 9% $5,000 face value bonds maturing

Question

On June 30, Year 7, King had an outstanding 9% $5,000 face value bonds maturing on June 30, year 9. Interest was payable semi annually every June 30th and December 31,. On June 30th, year 7, after amortization was recorded for the period. The unamortized bond premium and the bond issue cots were 30,000 and 50,000 respectively. On that date, kind acquired all its outstanding bonds on the open market at 98 and retired them. At June 30, year 7, what amount should king recognize as a gain before income tax on the redemption of bonds?

Explanation / Answer

Answer :-

Calculation of gain before income tax which King should recognize on redemption of bonds:-

Face value of bonds=$5000000

Bond premium =30000

Amount payable on retirement =5000000*. 98=4900000

Bond issue costs=50000

Gain=(5000000+30000)-(4900000+50000)

=$

80,000

NOTE =THE OUTSTANDING FACE VALUE OF BONDS SHOULD BE 5000000,QUESTION HAS BEEN SOLVED BASIS THIS

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