The December 31, 2017, balance sheet of Hess Corporation includes the following items: 9% bonds payable...

The December 31, 2017, balance sheet of Hess Corporation includes the following items:

9% bonds payable due December 31, 2026 $5,000,000

Unamortized premium on bonds payable 135,000

The bonds were issued on December 31, 2016, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2018, Hess retired $2,000,000 of these bonds at 98 plus accrued interest. What should Hess record as a gain on retirement of these bonds? Ignore taxes.

a. $94,000.

b. $54,000.

c. $93,000.

d. $100,000.

Expert Solution

Correct answer-----------(c) $93,000

Working

Date	Accounts title and explanation	Debit	Credit
March 1	Bonds payable	$ 2,000,000.00
	Premium on bonds payable	$ 53,000.00
	Gain on redemption of bonds		$ 93,000.00
	Cash		$ 1,960,000.00
	(To record redemption of bonds)

.

Face value of Bond redeemed	$ 2,000,000.00
Equivalent Unamortized premium on dec 31 2017	$ 54,000.00
Less: Premium to be amortized for 2 month (january and february 2018)	$ 1,000.00
Total unamortized premium on bond of $2000000 (54000-1000)	$ 53,000.00

.

Issue price	$ 5,150,000.00
Face value of Bond redeemed	$ 5,000,000.00
Premium on bonds	$ 150,000.00
Less: Unamortized premium on bonds payable on decembe 31 2017	$ 135,000.00
Premium amortized in 1 year	$ 15,000.00
Premium to be amortized for 2 months (15000/12*2)	$ 2,500.00
Equivalent premium to be amortized on $2000000 bonds	$ 1,000.00

ekkarill92 answered 1 year ago

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