On July 1,2019,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 2014.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 bonds were retired for $97,500, which is less than their par value of $100,000 (one fifth of $500,000). This results in a gain of $2,500 ($100,000 - $97,500) that will be reported on the income statement.

On July 1,2019,immediately After Recording Interest Payments,Salsa,Inc