A corporation issued 8% bonds with a par value of $1,000,000 at $1,020,000. 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

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The corporation issued the bonds at a premium of $20,000 ($1,020,000 - $1,000,000). After 5 years, 40% of the premium has been amortized, which is $8,000 (40% of $20,000). The remaining premium is $12,000 ($20,000 - $8,000). The carrying value of the bonds at retirement is $1,012,000 ($1,000,000 + $12,000). The corporation repurchased the bonds at 99% of par value, which is $990,000 (99% of $1,000,000). The gain on retirement is the difference between the carrying value and the repurchase price: $1,012,000 - $990,000 = $22,000 gain.

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