Redemption of Bonds McGee Company issued $200,000 face value bonds at a premium of $4,500. The bonds contain a call provision of 101. McGee decides to redeem the bonds due to a signifi -

cant decline in interest rates. On that date, McGee had amortized only $1,000 of the premium.

Required 1. Calculate the gain or loss on the early redemption of the bonds.

2. Calculate the gain or loss on the redemption assuming that the call provision is 103 instead of 101.

3. Indicate where the gain or loss should be presented on the fi nancial statements.

4. Why do you suppose the call price is normally higher than 100?

AppendixLO1