Spice Company issued $200,000 of 10 percent first mortgage bonds on January 1,20X4,at 105.The bonds mature in 10 years and pay interest semiannually on January 1 and July 1.Pumpkin Corporation purchased $140,000 of Spice's bonds from the original purchaser on December 31,20X8,for $125,000.Pumpkin owns 75 percent of Spice's voting common stock.Spice's partial bond amortization schedule is as follows:

-Based on the information given above,what amount of gain or loss on constructive bond retirement will be reported in the December 31,20X8 consolidated financial statements?

Question

Spice Company issued $200,000 of 10 percent first mortgage bonds on January 1,20X4,at 105.The bonds mature in 10 years and pay interest semiannually on January 1 and July 1.Pumpkin Corporation purchased $140,000 of Spice's bonds from the original purchaser on December 31,20X8,for $125,000.Pumpkin owns 75 percent of Spice's voting common stock.Spice's partial bond amortization schedule is as follows:
 
-Based on the information given above,what amount of gain or loss on constructive bond retirement will be reported in the December 31,20X8 consolidated financial statements?

Quizplus · Accepted Answer

The correct choice is a $19,276 gain, which is determined by comparing the reacquisition price of the bonds with the carrying amount of the bonds at the time of retirement. If the carrying amount is higher than the reacquisition price, the difference is reported as a gain.

Spice Company Issued $200,000 of 10 Percent First Mortgage Bonds