Question

Clabber Company has bonds outstanding with a par value of $121,000 and a carrying value of $109,900. If the company calls these bonds at a price of $105,500, the gain or loss on retirement is:

Answer 1

gain of $4400

Explanation:

carrying value= $109900

callable value= $105500

Since, the bond is callable it can be redeemed by the company before its maturity. The value at which the bond is redeemed is called callable value.

here the carrying value is higher than the callable value hence the balance will gain to the company.

Gain = carrying value-callable value= 109900-105500= $4400