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