A bond with a $500,000 maturity value is immediately retired for $515,000 plus accrued interest.The premium on bonds payable (bond premium)at the retirement date is $17,500.Which of the following statements is correct?
A)The loss on the debt extinguishment is $32,500.
B)The gain on the debt extinguishment is $2,500.
C)The gain on the debt extinguishment is $32,500.
D)The gain or loss on the debt extinguishment can't be determined without knowing the dollar amount of the accrued interest.

Question

Quizplus · Accepted Answer

The gain ($2,500)is the difference between the book value ($517,500)and the amount paid ($515,000)to retire the bonds;a gain results because the payment is less than book value.

A Bond with a $500,000 Maturity Value Is Immediately Retired