On July 1, 2020, 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, 2021. The carrying value of the bond at June 30, 2021 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

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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 $25,000 ($965,000 - $940,000) is a gain on the early extinguishment of debt.