Nickel Inc. bought $100,000 of 3-year, 6% bonds as an investment on December 31, 2017 for $106,000. The investment receives interest annually and Nickel uses straight-line amortization. On May 1, 2018, the issuer retired $10,000 of the bonds at 110. As a result of the retirement, Nickel will report a:

Question

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First, the premium must be amortized through May 1. Using the straight-line method, the annual amount is 1/3 of the three-year bond term and the portion of the current year to the date of retirement is 4 months = 4/12. The face value portion of bonds being retired is $10,000/$100,000 = 10%. 11ea937b_35f4_d73c_a419_475455013af2_TB2599_00