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Subject Topic: Gain on the sale of bonds (Topic Closed Topic Closed) Post ReplyPost New Topic
  
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IrvineCPA
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Posted: 19 Jul 2009 at 14:12 | IP Logged  

I was wondering if someone can help me understand this problem.

 

Jent Corp purchased bonds at a discount of $10,000. Subsequently, Jent sold these bonds at premium of $14,000. During the priod that Jent held this investment, amortization of the discount amounted $2,000. What amount should Jent report as gain on the sale of bonds?

 

  1. 24,000
  2. 12,000
  3. 26,000
  4. 22,000


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CPA08va
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Posted: 19 Jul 2009 at 15:09 | IP Logged  

Think the answer should be 4. 22,000.  Bond varrying value increased by 2,000, i.e. discount reduced to 8,000.  Add the premium of 14,000 and you get 22,000. 

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Zeratul
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Posted: 19 Jul 2009 at 15:18 | IP Logged  

The best way to approach a problem like this is to remove it from abstraction as much as possible. In this case, give the bond a maturity value. I'll use 100,000.

So:

Purchase:
Bonds Recievable      90,000 (100,000 maturity value-10,000 discount)
   Cash                             90,000

Amortization:
Bonds Recievable        2,000
   Interest Revenue              2,000

Sale:
Cash                     114,000 (100,000+14,000)
     Bonds Recievable           92,000 (90,000+2,000)
     Gain on sale of bonds    22,000
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IrvineCPA
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Posted: 19 Jul 2009 at 20:14 | IP Logged  

Man, you guys rock !!

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