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On June 30, 2018, K Co. had outstanding 10%, $14,500,000 face value bonds maturing on June...

On June 30, 2018, K Co. had outstanding 10%, $14,500,000 face value bonds maturing on June 30, 2023. Interest is payable semiannually every June 30 and December 31. On June 30, 2018, after amortization was recorded for the period, the unamortized bond premium was $54,000. On that date, K acquired all its outstanding bonds on the open market at 99 and retired them. At June 30, 2018, what amount should K Co. recognize as gain on redemption of bonds before income taxes?

Multiple Choice

  • $199,000.

  • $344,000.

  • $108,000.

  • $91,00

Business   Accounting   
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Answer #1
Book value of bonds at June 30, 2016, is $14,500,000 + $ 54,000 = $      14,554,000
Less : redemption price: 99% × $14,500,000 $     (14,355,000)
Gain = $          199,000
The remaining bond issue cost is written off as a loss and netted with the gain or loss on redemption. Gain = $199,000-0 = $199,000
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