Final answer:
The gain or loss on retirement of the bonds is found by subtracting the call price from the carrying value of the bonds, which includes the unamortized premium. After calculating these amounts, the result is a loss of $40,200 upon retirement of the bonds.
Step-by-step explanation:
The student asked about the gain or loss on retirement of a corporation's bonds. Initially, the corporation issued bonds with a par value of $1,140,000 and received a $48,000 premium. After 5 years, when 40% of the premium had been amortized, the bonds were called at $1,128,600. To calculate the gain or loss, we need to take into account both the unamortized premium and the price at which the bonds were retired.
Initially, the premium was $48,000. After 40% was amortized over 5 years, the unamortized premium is 60% of $48,000, which is $28,800. The carrying value of the bonds at the time of retirement, therefore, is the par value plus the unamortized premium, which totals to $1,140,000 + $28,800 = $1,168,800.
The bonds were called at $1,128,600, so the loss on retirement is $1,168,800 - $1,128,600 = $40,200. Therefore, the correct answer is a $40,200 loss.
When the corporation calls the bonds at $1,128,600, the unamortized amount is greater than the call price, resulting in a loss. The loss is equal to the unamortized amount minus the call price, which is $1,092,000 - $1,128,600 = $-36,600. Since the loss is negative, it means there is a gain on the retirement of the bonds. Therefore, the correct answer is c. $40,200 gain.