On February 1, 2012, Lantern Corp. issued 12 percent, $2,000,000 face value, ten-year bonds for $2,234,000 plus accrued interest. The bonds are dated November 1, 2011, and interest is payable on May 1 and November 1. Lantern reacquired all of these bonds at 102 on May 1, 2015, and retired them. Unamortized bond premium on that date was $156,000. Ignoring the income tax effect, what was Lantern's gain on the bond retirement?

Question

Quizplus · Accepted Answer

The gain on bond retirement is calculated as the difference between the reacquisition price and the carrying amount of the bonds. The reacquisition price is 102% of $2,000,000, which is $2,040,000. The carrying amount is the face value of $2,000,000 plus the unamortized premium of $156,000, totaling $2,156,000. The gain is $2,156,000 - $2,040,000 = $116,000.