During 2010, Hauke Co.purchased 2,000, $1,000, 9% bonds.The carrying value of the bonds at December 31, 2011 was $1,950,000.The bonds mature on March 1, 2015, and pay interest on March 1 and September 1.Hauke sells 1,000 bonds on March 1, 2012, for $980,000, after the interest has been received.Hauke uses effective interest amortization (10% effective interest rate).The gain on the sale is

Question

Quizplus · Accepted Answer

The carrying value of the 1,000 bonds sold on March 1, 2012 would be $975,000 ($1,950,000/2). The proceeds from the sale were $980,000, resulting in a gain of $5,000 ($980,000 - $975,000).