On January 1,2001,Cardinal Corporation issued 5% 25-year bonds at par and used the $12,000,000 proceeds to finance the construction of a new plant.On January 1,2011,the company acquired the bonds on the open market for $11,500,000.Assuming that Cardinal Corporation is neither bankrupt nor insolvent,the acquisition and retirement of the bonds results in which of the following:

Question

Quizplus · Accepted Answer

When bonds are retired or redeemed at a price other than their carrying value, the gain or loss on the retirement is recognized in the income statement. In this case, since the bonds were acquired at a discount of $500,000, an excess of par value, the company must recognize a $500,000 gain on retirement. The gain cannot be amortized over the remaining life of the bonds. The fact that the proceeds from the bond issue were used to finance the construction of a new plant is irrelevant to the gain recognition.

On January 1,2001,Cardinal Corporation Issued 5% 25-Year Bonds at Par