On February 1, 2008, Pat Weaver Inc. (PWI) issued 10%, $1,000,000 bonds for $1,116,000. PWI retired all of these bonds on January 1, 2009, at 102. Unamortized bond premium on that date was $92,800. How much gain or loss should be recognized on this bond retirement?

Question

Quizplus · Accepted Answer

The carrying value of the bonds on January 1, 2009 is calculated as follows:
$1,116,000 - $92,800 = $1,023,200
The amount paid to retire the bonds is calculated as follows:
$1,000,000 x 1.02 = $1,020,000
Therefore, the gain on bond retirement is:
$1,020,000 - $1,023,200 = ($3,200)
Since the carrying value of the bonds is reduced to $0, there is no need to recognize any additional gain or loss. Thus, the answer is C, $72,800 gain.