On February 1, 2012, Pat Weaver Inc. (PWI) issued 10%, $1,000,000 bonds for $1,116,000. PWI retired all of these bonds on January 1, 2013, 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 book value of the bonds at the time of retirement was $1,092,800 ($1,000,000 + $92,800 - $0. The company received $1,020,000 ($1,000,000 x 102%). Therefore, the gain on retirement is $72,800 ($1,020,000 - $1,092,800).