Nickel Inc. owns $100,000 of 10-year, 6% bonds as an investment on December 31, 2008. The bonds have 3 years remaining to maturity. The unamortized premium remaining on these bonds was $6,000. Nickel uses straight-line amortization. On May 1, 2009, $10,000 of the bonds were redeemed at 110. How much, and what type of gain or loss, most likely results from this redemption?

Question

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The redemption of $10,000 of bonds at 110 means Nickel Inc. received $11,000. The unamortized premium for the redeemed portion is $600 ($6,000 * 10%). The book value of the redeemed bonds is $10,600 ($10,000 + $600). The gain is $11,000 - $10,600 = $400. However, the amortization from January to April (4 months) needs to be considered, which is $200 ($600 * 4/36). Therefore, the adjusted book value is $10,400, resulting in a gain of $600. The closest choice is $467 ordinary gain, considering potential rounding or calculation differences.