Gain or Loss on Bonds
Bonds payable are dated January 1, 2014, and are issued on that date. The face value of the bonds is $150,000, and the face rate of interest is 14%. The bonds pay interest semiannually. The bonds will mature in five years. The market rate of interest at the time of issuance was 12%. Assume that the bonds are redeemed on December 31, 2014, at 105, when carrying value was $159,314.54.
Required:
Refer to the tables above for present value factors.
1. Calculate the gain or loss on bond redemption. Round answer to the nearest cent.
2. Identify and analyze the effect of the bond redemption?