A corporation issued 8% bonds with a par value of $1,000,000,receiving a $20,000 premium.On the interest date 5 years later,after the bond interest was paid and after 40% of the premium had been amortized,the corporation called the bonds at $990,000.The gain or loss on this retirement is:
A)$0.
B)$10,000 gain.
C)$10,000 loss.
D)$22,000 gain.
E)$22,000 loss.

Question

Quizplus · Accepted Answer

The gain on the retirement of the bonds is calculated by comparing the carrying amount of the bonds (par value plus unamortized premium) to the call price. Initially, the premium was $20,000. After 40% was amortized, $12,000 (60% of $20,000) remained. The carrying amount is $1,012,000 ($1,000,000 par value + $12,000 unamortized premium). The bonds were called for $990,000, so the gain is $22,000 ($1,012,000 - $990,000).

A Corporation Issued 8% Bonds with a Par Value of $1,000,000,receiving