On August 1, 2018, Buffalo Bills Inc. sold 8%, five-year bonds with a maturity value of $ 2,000,000 for $ 1,964,000. Interest on the bonds is payable semi-annually on August 1 and February 1. The bonds are callable at 104 at any time after August 1, 2020. By October 1, 2020, the market rate of interest has declined, and the market price of Buffalo Bills' bonds has increased to 102. The company decides to refund the bonds by selling a new 6% bond issue to mature in five years. Buffalo Bills begin to reacquire its 8% bonds in the market and can purchase $ 600,000 worth at 102. The remainder of the outstanding bonds is acquired by exercising the bond call feature. The carrying value of the 8%, five-year bonds on October 1, 2020, was $1,979,600. Buffalo Bills Inc. uses the straight-line method of amortization.

Instructions

Showing detailed calculations, calculate:

1. Buffalo Bills’ total cash disbursement in redeeming the bonds
2. The gain or loss in reacquiring the 8% bonds.

Answer rating: 100% (QA)

Answer Total gainloss on reacquisition Reacquisition Value Net Carrying Amount Re... View the full answer