A company has bonds outstanding with a par value of $100,000. The unamortized discount on these bonds is $4,500. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?
A) $0 gain or loss.
B) $1,500 gain.
C) $1,500 loss.
D) $3,000 gain.
E) $3,000 loss.

Question

Quizplus · Accepted Answer

The carrying value of the bonds before retirement was:

$100,000 (par value) - $4,500 (unamortized discount) = $95,500

The company retired the bonds by buying them on the open market at 97% of par value, which is:

$100,000 x 97% = $97,000

The gain or loss on retirement is the difference between the carrying value and the amount paid to retire the bonds:

Gain/Loss = Amount Paid - Carrying Value
= $97,000 - $95,500
= $1,500 loss

Therefore, the correct answer is C, $1,500 loss.

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