The Big Co.issued $100,000 of bonds for their face value six years ago.This year,it retires the bonds for $105,000.As a result of retiring these bonds,it:
A)reduces its liabilities by $105,000.
B)reduces its assets by $100,000.
C)reports a gain of $5,000.
D)reports a loss of $5,000.

Question

Quizplus · Accepted Answer

When The Big Co.retires these bonds,Cash,an asset,decreases by $105,000 and Bonds Payable,a liability,decreases by $100,000.As a result,it must report a loss of $5,000 (or amount paid to retire bonds of $105,000 − carrying value of $100,000).