Foster Corporation issued a $100,000, 10-year, 10 percent bond on January 1, 2010, for $112,000. Foster uses the straight-line method of amortization. On April 1, 2013, Foster reacquired the bonds for retirement when they were selling at 102 on the open market. How much gain or loss should Foster recognize on the retirement of the bonds?

Question

Quizplus · Accepted Answer

Step 1: Calculate the carrying value of the bond at the time of retirement.
Carrying value = Face value of bond - Accumulated amortization
The bond was issued for $112,000 and the straight-line method of amortization was used for 3 years (2010-2012). Therefore, the accumulated amortization = (10% * $100,000 * 3) = $30,000
Carrying value = $100,000 - $30,000 = $70,000

Step 2: Compare the carrying value with the reacquisition price.
The bond was reacquired for $102,000, which is less than the carrying value of $70,000. Therefore, there is a gain on retirement.

Step 3: Calculate the amount of gain or loss.
Gain on retirement = Reacquisition price - Carrying value
Gain on retirement = $102,000 - $70,000 = $32,000

Since the company reacquired the bonds at a price that is less than their carrying value, there is a gain on retirement. The amount of gain is calculated as $32,000.
Therefore, the correct answer is C.

Foster Corporation Issued a $100,000, 10-Year, 10 Percent Bond on January