A company has bonds outstanding with a par value of $100,000. The unamortized premium on these bonds is $2,700. If the company retired these bonds at a call price of 99, the gain or loss on this retirement is:
A) $1,000 gain.
B) $1,000 loss.
C) $2,700 loss.
D) $2,700 gain.
E) $3,700 gain.

Question

Quizplus · Accepted Answer

The gain on retirement is calculated by comparing the net carrying amount of the bonds to the call price. The net carrying amount is the par value plus the unamortized premium, which is $100,000 + $2,700 = $102,700. The call price of 99 means the bonds are retired at 99% of their par value, which is $100,000 * 99% = $99,000. The gain is the difference between the net carrying amount and the retirement price, which is $102,700 - $99,000 = $3,700.

A Company Has Bonds Outstanding with a Par Value of $100,000