On January 1, 2008, Hernandez Corporation issued $9,000,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Hernandez at 105. Hernandez has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method).On December 31, 2014, when the fair value of the bonds was 96, Hernandez repurchased $2,000,000 of the bonds in the open market at 96. Hernandez has recorded interest and amortization for 2014. Ignoring income taxes and assuming that the gain is material, Hernandez should report this reacquisition as

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The gain from the bond reacquisition is calculated by comparing the repurchase price with the carrying amount of the bonds. Since the bonds were issued at a premium (103% of face value) and repurchased at a discount (96% of face value), the difference between the carrying amount and the repurchase price represents a gain. The calculation involves determining the carrying amount of the $2,000,000 portion of the bonds at the time of repurchase, taking into account the amortization of the premium up to that date, and then comparing it to the repurchase price ($2,000,000 * 96%). The gain is recognized because the repurchase price is lower than the carrying amount of the bonds.

On January 1, 2008, Hernandez Corporation Issued $9,000,000 of 10