[Anonymous]

Can someone please explain the answer to this question? I am confused as to why the correct answer is not derived from subtracting the purchase price of the bond minus the amortized portion which would leave the carrying amount at $8,000. Subtracting $8,000 from the selling price of $14,000 leaves a gain of $6,000.

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

Answer (B) is correct.

The gain equals the sale price (face amount + $14,000 premium) minus the carrying amount [face amount – ($10,000 original discount – $2,000 amortization)]. Consequently, the gain is $22,000 [(face amount + $14,000) – (face amount – $8,000)].

C.

$24,000

D.

$26,000

[Anonymous]

example: if you bought a bonds with 100,000 face at 10,000 discount

that means 90,000 ,and in this year the 10,000 discount amortized with 2,000

this leaves us with 92,000 carrying value of the bond

then you sell it with 14,000 premium

this mean 14,000 more than the face

then the bond sold with 114,000

minus 92,000 selling price leaves us with 22,000 gain

[Anonymous]

Thanks AnasAG. I understand it much better now.

[Riyaad]

Really weird question.. just a few of many from Becker's MCQ

[Author]

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