On June 30, 2009, K Co. had outstanding 9%, $10,000,000 face value bonds maturing on June 30, 2014. Interest is payable semiannually every June 30 and December 31. On June 30, 2009, after amortization was recorded for the period, the unamortized bond premium and bond issue costs were $60,000 and $100,000, respectively. On that date, K acquired all its outstanding bonds on the open market at 98 and retired them. At June 30, 2009, what amount should K recognize as gain before income taxes on redemption of bonds?
A)$ 40,000.
B)$160,000.
C)$240,000.
D)$360,000.Carrying value of bonds at June 30, 2009 is $9,960,000 ($10,000,000 + $60,000 $100,000).Subtract repurchase price: 98% $10,000,000 = $9, 800,000.Gain = $160,000.

Question

Quizplus · Accepted Answer

The carrying value of the bonds at June 30, 2009, after amortization, is $9,960,000 ($10,000,000 + $60,000 - $100,000). When K repurchases the bonds at 98% of their face value, they pay $9,800,000. Therefore, K recognizes a gain of $160,000 ($9,960,000 - $9,800,000) before income taxes on the redemption of the bonds. The correct answer is B.