MSG Corporation issued $100,000 of 3-year, 6% bonds outstanding on December 31, 2012 for $106,000. MSG uses straight-line amortization. On May 1, 2013, $10,000 of the bonds were retired at 112. How much, and what type of gain or loss, most likely results from this retirement?

Question

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The bonds were issued at a premium, and the premium is amortized over the life of the bonds. When $10,000 of the bonds are retired, the unamortized premium related to these bonds must be considered. The retirement price is higher than the carrying amount, resulting in a loss. The loss is ordinary, not extraordinary, as it is part of normal business operations.

MSG Corporation Issued $100,000 of 3-Year, 6% Bonds Outstanding on December