Refer to Brief Exercise 10-5. Assume that the bonds are redeemed on December 31, 2012, at 102.

Question:

Bonds payable are dated January 1, 2012, and are issued on that date. The face value of the bonds is $100,000, and the face rate of interest is 8%. The bonds pay interest semiannually. The bonds will mature in five years. The market rate of interest at the time of issuance was 6%.

Required

1. Calculate the gain or loss on bond redemption.

2. Identify and analyze the effect of the bond redemption.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...