A corporation issued 8% bonds with a par value of $1,000,000, receiving a $20,000 premium. On the interest date 5 years later, after the bond interest was paid and after 40% of the premium had been amortized, the corporation purchased the entire issue on the open market at 99 and retired it. The gain or loss on this retirement is:
A) $0.
B) $10,000 gain.
C) $10,000 loss.
D) $22,000 gain.
E) $22,000 loss.

Question

Quizplus · Accepted Answer

The corporation received a $20,000 premium, and 40% of it was amortized, leaving $12,000 unamortized. The bonds were retired at 99, which means they were bought back for $990,000. The carrying amount of the bonds is $1,012,000 ($1,000,000 par value + $12,000 unamortized premium). The gain on retirement is $1,012,000 - $990,000 = $22,000.

A Corporation Issued 8% Bonds with a Par Value of $1,000,000