On July 1, 2017, Tilapia Corp.had outstanding 8%, $1,000,000, 10-year bonds maturing on June 30, 2027.Interest is payable semi-annually on June 30 and December 31.Assume all appropriate entries had been prepared and posted at June 30, 2018.The carrying value of the bond at June 30, 2018 was $965,000.At this time, Tilapia purchased all the bonds at 94 and retired them.What is the gain or loss on this early extinguishment of debt?

Question

Quizplus · Accepted Answer

The carrying value of the bonds was $965,000, and they were repurchased at 94% of $1,000,000, which is $940,000. The difference of $965,000 - $940,000 results in a $25,000 gain.