If Salem Co. retires $10 million of these bonds by purchasing them from bondholders at current market price, the company will report:

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If Salem Co. retires $10 million of these bonds by purchasing them from bondholders at the current market price, the company will report a gain of $600,000. This is because the carrying value of the bonds on the company's books is $10.6 million ($11 million face value minus $400,000 unamortized bond discount). If the market price is lower than this carrying value, the company will be able to purchase the bonds for less than their carrying value and realize a gain. In this case, if the market price is $10 million, the company will be able to purchase the bonds for that amount, resulting in a gain of $600,000 ($10.6 million carrying value minus $10 million purchase price).