Question

1) On March 31, 2016, Bundy Company retired $10,600,000 of bonds, which have an unamortized premium of $600,000, by paying bondholders $10,400,000. What is the amount of the gain or loss on the retirement of the bonds?

A) $800,000 gain.

B) $400,000 loss.

C) $200,000 gain.

D) $200,000 loss.

2) A Company retired $660,000 of bonds, which have an unamortized discount of $26,000, by repurchasing them for $660,000. What is the amount of the gain or loss on the retirement of the bonds?

A) There was a $660,000 loss.

B) There was no gain or loss.

C) There was a $26,000 loss.

D) There was a $26,000 gain.

3) A Company retired $360,000 of bonds, which have an unamortized premium of $16,000, by purchasing them on the open market for $386,000. What is the amount of the gain or loss on the retirement of the bonds?

A) There was a $10,000 loss.

B) There was an $42,000 loss.

C) There was a $26,000 gain.

D) There was a $26,000 loss.

Answer 1

• All working forms part of the answer
• Answers can be found by recording journal entries for retirement and finding the balancing figure to match total of journal’s column.
• Question 1

Date	Accounts title	Debit	Credit
31-Mar	Bonds payable	$         10,600,000
	Premium on Bonds Payable	$               600,000
	Gain on Retirement of Bonds	$                          -	$              800,000
	Cash		$        10,400,000
	(Bonds retired)
	Total of column of journal	$         11,200,000	$        11,200,000

Correct Answer = Option ‘A’ $ 800,000 Gain

• Question 2

Accounts title	Debit	Credit
Bonds payable	$               660,000
Loss on Retirement	$                 26,000
Discount on Bonds Payable		$                26,000
Cash		$              660,000
(Bonds retired)
Total of column of journal	$               686,000	$              686,000

Correct Answer = Option ‘C’ There was a $ 26,000 Loss

• Question 3

Accounts title	Debit	Credit
Bonds payable	$               360,000
Premium on Bonds Payable	$                 16,000
Loss on Retirement	$                 10,000
Cash		$              386,000
(Bonds retired)
Total of column of journal	$               386,000	$              386,000

Correct Answer = Option ‘A There was a $ 10,000 LOSS