On December 1, 2017, Cone Company issued its 8%, $710,000 face value bonds for $820,000, plus accrued interest. Interest is payable on November 1 and May 1. On December 31, 2019, the book value of the bonds, inclusive of the unamortized premium, was $750,000. On July 1, 2020, Cone reacquired the bonds at 97 plus accrued interest. Cone appropriately uses the straight-line method for the amortization because the results do not materially differ from those of the effective interest method.

Required:

Prepare a schedule to compute the gain or loss on this redemption of debt. Enter all values as positive values.

Gain on bond redemption is $37,400

Explanation:

Computation of gain on early retirement of bonds

Carrying value as at December 1 2017                        $820,000

Carrying value as at December 31 2019                       ($750,000)

Premium amortized                                                            $70,000

amortization per month($70,000/25)                                $2800

(December 1 2017-December 31 2019 is 25 months)

Carrying value as at December 31 2019                       $750,000

less amortization for 2020($2800*6 months)                ($16,800 )

Carrying value as at July 1 2020                                    $733,200

Proceeds paid for redemption($710,000*98%)             ($695,800 )

Gain on redemption                                                         $37,400

At redemption the bonds were worth $733,200 but only $695,800 was paid ,hence the excess is the gain on bonds redemption

the correct choice is a