Soap Company issued $200,000 of 8%, 5-year bonds on January 1, 2016.The discount on issuance was $12,000.Bond interest is paid annually on December 31.On December 31, 2018, Pumice Company purchased one-half of the outstanding bonds for $96,000.Both companies use the straight-line method of amortization.
What amount of gain or loss from retirement of debt will be reported on the 2018 consolidated financial statements?

Question

Soap Company issued $200,000 of 8%, 5-year bonds on January 1, 2016.The discount on issuance was $12,000.Bond interest is paid annually on December 31.On December 31, 2018, Pumice Company purchased one-half of the outstanding bonds for $96,000.Both companies use the straight-line method of amortization. ​
What amount of gain or loss from retirement of debt will be reported on the 2018 consolidated financial statements?

Quizplus · Accepted Answer

The correct answer is A.The gain or loss on retirement of debt is calculated as the difference between the carrying value of the bonds and the repurchase price. The carrying value of the bonds is $192,000 ($200,000 - $12,000 * 3/5). The repurchase price is $96,000. Therefore, the gain on retirement of debt is $192,000 - $96,000 = $96,000.

Soap Company Issued $200,000 of 8%, 5-Year Bonds on January