Asked by mahesh likhe on May 20, 2024
Verified
The retirement of a bond which has a $250,000 maturity value and a $10,000 balance in premium on bonds payable (bond premium)creates a $15,000 gain if the bond is retired at a cost of $245,000.
Premium On Bonds Payable
The amount by which a bond's selling price exceeds its face value, reflecting higher market interest rates at the time of issuance.
Maturity Value
The total amount payable to an investor at the end of a fixed term investment, including the principal and any accrued interest.
- Learn how to calculate the gain or loss on retirement of bonds before their maturity.
Verified Answer
AM
Adrienne MichelleMay 23, 2024
Final Answer :
True
Explanation :
The gain on retirement of bond is calculated as follows:
Consideration paid for bond = $245,000
Maturity value of bond = $250,000
Balance in premium on bonds payable (bond premium) = $10,000
Total amount paid by the issuer = $245,000 + $10,000 = $255,000
Gain on retirement of bond = Maturity value of bond - Total amount paid by issuer
= $250,000 - $255,000
= -$5,000 (negative value indicates a loss)
Since the result is a loss, the statement in the question is false.
Consideration paid for bond = $245,000
Maturity value of bond = $250,000
Balance in premium on bonds payable (bond premium) = $10,000
Total amount paid by the issuer = $245,000 + $10,000 = $255,000
Gain on retirement of bond = Maturity value of bond - Total amount paid by issuer
= $250,000 - $255,000
= -$5,000 (negative value indicates a loss)
Since the result is a loss, the statement in the question is false.
Learning Objectives
- Learn how to calculate the gain or loss on retirement of bonds before their maturity.