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cpa2010
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Joined: 02 Feb 2010
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Posted: 22 Jul 2010 at 16:03 \| IP Logged

Jent Corp. purchased bonds at a discount of $10,000. Subsequently, Jent sold these bonds at a

premium of $14,000. During the period that Jent held this investment, amortization of the discount

amounted to $2,000. What amount should Jent report as gain on the sale of bonds?

a. $12,000

b. $22,000

c. $24,000

d. $26,000

ans is b ....how?

CPASTONE
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Joined: 12 Jul 2010
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Posted: 22 Jul 2010 at 16:17 \| IP Logged

The answer is calculated as follows

Purchase of bond at discount of 10000
Less: amortized amount of discount (2000)
Add:Premium on sale 14000
So net gain is 22000

The logic is any discount is gain(which is deferred) and selling something bought on discount at a premium is a further gain. Here however 2000 was already amortized(or i would rather say recognized) so we need to deduct it. Hope this helps.

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cpa2010
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Posted: 22 Jul 2010 at 17:07 \| IP Logged

nice explanation ...thanks

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