MSG Corporation has $100,000 of 10-year, 6% bonds outstanding on December 31, 2008. The bonds have 3 years remaining to maturity. The unamortized premium remaining on these bonds was $6,000. MSG uses straight-line amortization. On May 1, 2009, $10,000 of the bonds were retired at 112. How much, and what type of gain or loss, most likely results from this retirement?
A)$667 ordinary loss.
B)$667 extraordinary loss.
C)$667 ordinary gain.
D)$667 extraordinary gain.

Question

Quizplus · Accepted Answer

The bonds were retired at 112, meaning MSG paid $11,200 to retire $10,000 of bonds. The unamortized premium for the retired portion is $600 ($6,000 * 10%). The carrying amount of the bonds is $10,600 ($10,000 + $600). The loss is $600 ($11,200 - $10,600), which is an ordinary loss.

MSG Corporation Has $100,000 of 10-Year, 6% Bonds Outstanding on December