Burger Barn Company issued $150,000 face value bonds at a premium of $6,000. The bonds contain a call provision of 102. Burger Barn decides to redeem the bonds due to a significant decline in interest rates. On that date, Burger Barn amortized only $1,500 of the premium.

Required
1. Calculate the gain or loss on early redemption of the bonds.

2. Determine the impact on the accounting equation of the journal entry recorded at the time of bond redemption.

3. Where should the gain or loss should be presented on the financial statements?

4. Why is the call price normally higher than 100?

Question

Burger Barn Company issued $150,000 face value bonds at a premium of $6,000. The bonds contain a call provision of 102. Burger Barn decides to redeem the bonds due to a significant decline in interest rates. On that date, Burger Barn amortized only $1,500 of the premium.

Required
1. Calculate the gain or loss on early redemption of the bonds.

2. Determine the impact on the accounting equation of the journal entry recorded at the time of bond redemption.

3. Where should the gain or loss should be presented on the financial statements?

4. Why is the call price normally higher than 100?

Quizplus · Accepted Answer

The Answer of Burger Barn Company issued $150,000 face value bonds at a premium of $6,000. The bonds contain a call provision of 102. Burger Barn decides to redeem the bonds due to a significant decline in interest rates. On that date, Burger Barn amortized only $1,500 of the premium.

Required
1. Calculate the gain or loss on early redemption of the bonds.

2. Determine the impact on the accounting equation of the journal entry recorded at the time of bond redemption.

3. Where should the gain or loss should be presented on the financial statements?

4. Why is the call price normally higher than 100?

Burger Barn Company Issued $150,000 Face Value Bonds at a Premium