Townson Co.has outstanding $100 million of 7% bonds, due in 7 years, and callable at 104.The bonds were issued at par and are selling today at a market price of 94.If Townson Co.calls $20 million of these bonds it will report:

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If Townson Co.calls $20 million of these bonds, it will have to pay $20.8 million (104% of $20 million) to retire the bonds, resulting in a loss of $800,000 ($20.8 million - $20 million - 7%*$20 million*7 years). This is a realized loss, not an unrealized gain, and gains and losses are recognized on early retirements of debt.