On January 1, 2012, Corporation A issued $18,000,000 of 10% ten-year bonds at 103. The bonds...

On January 1, 2012, Corporation A issued $18,000,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Corporation A at 105. Corporation A has recorded amortization of the bond premium on the straight line method.

On December 31, 2018, when the fair value of the bonds was 96, Corporation A repurchased $4,000,000 if the bonds in the open market at 96. Corporation A has recorded interest and amortization for 2018.

What amount of gain/loss(ignoring income tax) would Corporation A report on this acquisition of bonds?

I need help understanding how to solve a problem like this.

Solutions

Expert Solution

Face Value of bonds	18,000,000
Issue price of bonds	18,540,000
Premium on bonds	540,000

Amortization per year	54,000	(540000 /10)
Amortization upto Dec 31, 2018	378,000	(54000 x 7)

Carrying value of bonds on Dec 31, 2018	18,162,000	(18540000-378000)
Proportional carrying value of bonds repurchased	4,036,000	(18162000 x 4/18)
Less: repurchase price	3,840,000	(4000000 x 96%)
Gain on repurchase	196,000

ekkarill92 answered 1 year ago

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