Other What is the gain or loss on this retirement

Accounting
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A company has bonds outstanding with a par value of $400,000. The unamortized premium on these bonds is $2,000. The company retired these bonds by buying them on the open market at 97. What is the gain or loss on this retirement?

$10,000 loss
$14,000 loss
$14,000 gain
$10,000 gain
$0 gain or loss
Apr 20th, 2015

the answer is $14,000 gain

400,000 + 2,000 = $402,000 carrying value
The bonds were repurchased at 97. That means 97% of the face value
400,000 x 97% = 388,000 purchase price.
When the carrying value is more than the cash paid, there is a gain.
402,000 - 388,000 = $14,000 Gain

Apr 20th, 2015

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