During 2009, Hauser Co.purchased 1,000, $1,000, 9% bonds.The carrying value of the bonds at December 31, 2011 was $980,000.The bonds mature on March 1, 2016, and pay interest on March 1 and September 1.Hauser sells 500 bonds on September 1, 2012, for $494,000, after the interest has been received.Hauser uses straight-line amortization and has accounted for the bonds under the cost model.The gain on the sale is

Question

Quizplus · Accepted Answer

The carrying value of the 500 bonds sold on September 1, 2012, is:

$980,000 ÷ 1,000 bonds = $980 per bond
$980 × 500 bonds = $490,000

Since the selling price is $494,000, there is a gain on the sale of:

$494,000 − $490,000 = $4,000

Therefore, choice (C) is the correct answer.