On July 1,2011,immediately after recording interest payments,Salsa,Inc.retired one fifth of its $500,000 of bonds payable for $97,500.The bonds were originally issued at par value in 2006.Which of the following statements is correct?
A)Stockholders' equity is not affected by the bond retirement.
B)A gain of $2,500 will be reported on the income statement.
C)A loss of $2,500 will be reported on the income statement.
D)A gain of $402,500 will be reported on the income statement.

Question

Quizplus · Accepted Answer

The gain ($2,500) occurs because the cash payment ($97,500) is less than the bond payable book value ($100,000).

On July 1,2011,immediately After Recording Interest Payments,Salsa,Inc