Soap & Pumice: Soap Company issued $200,000 of 8%, 5-year bonds on January 1, 20X6. The discount on issuance was $12,000. Bond interest is paid annually on December 31. On December 31, 20X8, Pumice Company purchased one-half of the outstanding bonds for $96,000. Both companies use the straight-line method of amortization.
-Refer to Soap & Pumice. What amount of gain or loss from retirement of debt will be reported on the 20X8 consolidated financial statements?

Question

Quizplus · Accepted Answer

The carrying amount of the bonds on December 31, 20X8, is $194,400 ($200,000 - $5,600 unamortized discount). Pumice purchased half of the bonds for $96,000, which is $1,200 less than the carrying amount of $97,200 ($194,400 / 2). Therefore, a gain of $1,200 is recognized.

Soap & Pumice: Soap Company Issued $200,000 of 8%, 5-Year