Question

A company has bonds outstanding with a par value of $660,000. The unamortized premium on these bonds is $3,300. The company retired these bonds by buying them on the open market at 98. What is the gain or loss on this retirement?

Answer 1

* All working forms part of the answer

A	Bonds's Par Value	$                    660,000
B	Unamortised premium there on	$                         3,300
C = A+ B	Carrying Value of Bonds Payable	$                    663,300	[Book value of Bonds]
D	Cash Paid on retirement	$                    646,800	[$660,000 x 98/100]
E = C - D	Gain on Retirement on Bond	$                       16,500	[Gain because the Cash paid on retirement is LESS than the Carrying value of Bonds]