Question

Clabber Company has bonds outstanding with a par value of $119,000 and a carrying value of $108,700. If the company calls these bonds at a price of $104,500, the gain or loss on retirement is:
a. $10,300 gain.
b. $4,200 gain.
c. $14,500 loss.
d. $4,200 loss.
e. $10,300 loss

Answer 1

Answer:

option (b) $4,200 gain

Explanation:

Data provided in the question:

Par value of outstanding bonds  = $119,000

Carrying value of the bonds = $108,700

Price at which bond is called = $104,500

Now,

Gain on the retirement is calculated using the relation as;

Gain on retirement

= Carrying value of Bonds - Price at which bond is called

= $108,700 - $104,500

= $4,200

Since, the result is positive, therefore a gain will be recognized

Hence, correct answer is option (b) $4,200 gain