McGee Company issued $200,000 face value bonds at a premium of $4,500. The bonds contain a call provision of 101. McGee decides to redeem the bonds due to a significant decline in interest rates. On that date, McGee had amortized only $1,000 of the premium. Required: 1. Calculate the gain or loss on the early redemption of the bonds. Gain v 2. Calculate the gain or loss on the redemption assuming that the call provision is 103 instead of 101. Loss v
McGee Company issued $200,000 face value bonds at a premium of $4,500. The bonds contain a call provision of 101. McGee decides to redeem the bonds due to a significant decline in interest rates. On that date, McGee had amortized only $1,000 of the premium. Required: 1. Calculate the gain or loss on the early redemption of the bonds. Gain v 2. Calculate the gain or loss on the redemption assuming that the call provision is 103 instead of 101. Loss v
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
100%
I need help calculating the dollar amounts for #1 and #2. Thank you
Transcribed Image Text:**Redemption of Bonds**
McGee Company issued $200,000 face value bonds at a premium of $4,500. The bonds contain a call provision of 101. McGee decides to redeem the bonds due to a significant decline in interest rates. On that date, McGee had amortized only $1,000 of the premium.
**Required:**
1. Calculate the gain or loss on the early redemption of the bonds.
- \( \_\_\_\_ \) Gain ✔️
2. Calculate the gain or loss on the redemption assuming that the call provision is 103 instead of 101.
- \( \_\_\_\_ \) Loss ✔️
3. Select where the gain or loss should be presented on the financial statements.
- Income Statement ✔️
4. Why is the call price normally higher than 100?
Bonds are redeemed early only if it is advantageous to the **issuing firm**. To compensate the **investors** for forgone interest, as well as for the costs and inconvenience involved, the call price is normally set at an amount higher than 100.
---
**Feedback**
▽ **Check My Work**
Carrying value is the face value of a bond adjusted for the amount of unamortized premium or discount. Calculate redemption amount. The gain or loss is the difference between the carrying value and redemption price. Consider the impact to the investor.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education