Because of changing market conditions, piggly wiggly made a decision to redeem $900,000 of its bonds prior to maturity. the bonds originally sold for $952,250 and the unamortized premium at the time of redemption was $28,100. piggly wiggly’s bond certificates indicated that the bonds could be retired early at 104. determine the gain or loss on the bond retirement?
Question: Because of changing market conditions, piggly wiggly made a decision to redeem $900,000 of its bonds prior to maturity. the bonds originally sold for $952,250 and the unamortized premium at the time of redemption was $28,100. piggly wiggly’s bond certificates indicated that the bonds could be retired early at 104. determine the gain or loss on the bond retirement?
When Piggly Wiggly redeems its bonds prior to maturity, it will need to pay the bondholders the call price, which is 104% of the face value of the bonds. The face value of the bonds is $900,000, so the call price is $936,000 (104% x $900,000). Since the bonds were originally sold for $952,250 and the unamortized premium at the time of redemption was $28,100, Piggly Wiggly would have received a total of $980,350 ($952,250 + $28,100) if the bonds had been held until maturity. Therefore, the gain or loss on the bond retirement is:
Gain or loss = Call price - Total amount received
Gain or loss = $936,000 - $980,350
Gain or loss = -$44,350
Since the result is negative, this means that Piggly Wiggly incurred a loss of $44,350 on the bond retirement.
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