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A company has bonds outstanding with a par value of $100,000. the unamortized discount on these bonds is $4,500. the company retired these bonds by buying them on the open market at 97. what is the gain or loss on this retirement?

a. $0 gain or loss.
b. $1,500 gain.
c. $1,500 loss.
d. $3,000 gain.
e. $3,000 loss.

User Calon
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1 Answer

7 votes

Final answer:

The company realized a $1,500 gain on the retirement of the bonds, as they were bought on the open market at a price lower than their book value after accounting for the unamortized discount. Therefore, the correct option is B.

Step-by-step explanation:

The company has bonds outstanding with a par value of $100,000 and an unamortized discount of $4,500. These bonds were retired when the company bought them on the open market at 97% of the par value. To calculate the gain or loss from this retirement, we need to determine the cost to retire the bonds and compare it with the book value of the bonds. The cost to retire the bonds is 97% of $100,000, which equals $97,000. The book value of the bonds is the par value minus the unamortized discount, which is $100,000 - $4,500 = $95,500. When we compare the book value with the retirement cost, we find that the company has a gain because it paid less to retire the bonds than their book value. The gain is the book value minus the cost to retire, that is $95,500 - $97,000 = -$1,500, which indicates a $1,500 gain.

User Redoff
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