Question

On the day Trott Ltd redeemed its $1,000,000 face value bonds at 98, their carrying value...

On the day Trott Ltd redeemed its $1,000,000 face value bonds at 98, their carrying value was $1,200,000.

Required:

Prepare a residual analysis (include figures) for the bond redemption. If you recognise a gain or loss, state where in the Statement of Comprehensive Income the gain or loss should appear.

Homework Answers

Answer #1
Since bond face value is $1,000,000 and it is redeemed at 98%, so following gain will be recorded:
bonds payable $        1,000,000 Face Value of bonds
Premium on bonds payable $            200,000 Unamortized premium
Gain on redemption of bonds $ 220,000 Gain on redemption
Cash $ 980,000 ($1,000,000 x 98%)
As per FASB statement no 4 This gain on redemption should appear under the head other income and expenses, since this is
not a operating income and if the amount is large enough, it should appear in extraordinary
gain or losses.
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