On January 1, 2009, Cardinal Corporation issued 5% 25-year bonds at par and used the $12,000,000 proceeds to finance the construction of a new plant.On January 1, 2019, the company acquired the bonds on the open market for $11,500,000.Assuming that Cardinal is neither bankrupt nor insolvent, the acquisition and retirement of the bonds results in which of the following?

Question

Quizplus · Accepted Answer

When a company acquires its own bonds on the open market for less than their par (or carrying) value, the difference between the carrying value and the purchase price is recognized as a gain. In this case, Cardinal Corporation acquired its bonds for $11,500,000, which is $500,000 less than their par value of $12,000,000, resulting in a $500,000 gain.

On January 1, 2009, Cardinal Corporation Issued 5% 25-Year Bonds