A company has bonds outstanding with a par value of $100,000.The unamortized discount on these bonds is $4,500.The company calls these bonds at a price of $97,000,the gain or loss on retirement is:
A)$0 gain or loss.
B)$1,500 gain.
C)$1,500 loss.
D)$3,000 gain.
E)$3,000 loss.

Question

Quizplus · Accepted Answer

The book value of the bonds is calculated as follows:
Par value - unamortized discount
$100,000 - $4,500 = $95,500
Since the company is calling the bonds at a price of $97,000, they will receive a gain of:
Call price - book value
$97,000 - $95,500 = $1,500
However, since the book value is less than the par value, the company will have to recognize a loss on retirement of the bonds:
Par value - call price
$100,000 - $97,000 = $3,000
Therefore, the net effect of retiring the bonds is a loss of $1,500 ($3,000 loss on retirement minus $1,500 gain from the call). The answer is C.

A Company Has Bonds Outstanding with a Par Value of $100,000.The