Reference no: EM131797248

Redemption of Bonds

HARVARD Company issued $250,000 face value bonds at a discount of $5,500. The bonds contain a call provision of 102. HARVARD decides to redeem the bonds due to a significant decline in interest rates. On that date, HARVARD had amortized only $1,500 of the discount.

Required:

1. Calculate the gain or loss on the early redemption of the bonds. Round your answer to the nearest whole dollar.

2. Calculate the gain or loss on the redemption assuming that the call provision is 99 instead of 102. Round your answer to the nearest whole dollar.

3. Select where the gain or loss should be presented on the financial statements.

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

Bonds are redeemed early only if it is advantageous to the - Select your answer -investorsissuing firm Item 6 . To compensate the - Select your answer -investorsissuing firm Item 7 for forgone interest, as well as for the costs and inconvenience involved, the call price is normally set at an amount higher than 100.