Herman Company Received Proceeds of ₤471,250 on 10-Year, 8% Bonds

question 225

Multiple Choice

Herman Company received proceeds of ₤471,250 on 10-year, 8% bonds issued on January 1, 2012. The bonds had a face value of ₤500,000, pay interest semi-annually on June 30 and December 31, and have a call price of 101. Herman uses the straight-line method of amortization. Herman Company decided to redeem the bonds on January 1, 2014. What amount of gain or loss would Herman report on its 2014 income statement?

• A) ₤23,000 gain
• B) ₤28,000 gain
• C) ₤28,000 loss
• D) ₤23,000 loss

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Definitions:

Interest Rate

The proportion of a loan or savings amount paid as interest to the lender or paid to the saver, usually expressed as an annual percentage.

Compensation Strategy

A company’s plan or approach towards designing and implementing payment structures and benefits for its employees.

Formulating

The process of devising or developing strategies, plans, or policies.

Process

A series of actions or steps taken in order to achieve a particular end.