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18 April, 11:41

On February 1, 2017, Pat Weaver Inc. (PWI) issued 9%, $ 1,300,000 bonds for $ 1,600,000. PWI retired all of these bonds on January 1, 2018, at 106. Unamortized bond premium on that date was $ 137,800. How much gain or loss should be recognized on this bond retirement?

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  1. 18 April, 14:46
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    Answer: $59,800

    Explanation:

    GIVEN the following;

    Unamortized bond premium (difference between the Par value and the value at which a bond was sold that hasn't been subjected to interest charge.) = $137,800

    Retired rate = 106 %

    Paid on redemption:

    $1,300,000 * 1.06 = $1,378,000

    Book value = $1,300,000 + $137,800 = $1,437,800

    Gain or loss on bond retirement:

    Paid on redemption - Book value

    $ (1,378,000 - $1,437,800) = $59,800

    Gain = $59,800

    Book value is greater.
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