Answer:
$8,000 gain
Explanation:
the carrying value of the bonds at the time of the redemption:
10 coupon payments were made, so amortization of bond premium = ($40,000 / 20) x 11 = $22,000
carrying value = $1,040,000 - $22,000 = $1,018,000
redemption price = $1,000,000 x 1.01 = $1,010,000
Fox's gain = carrying value - redemption price = $1,018,000 - $1,010,000 = $8,000
Since the carrying value was higher than the redemption value, Fox must report a gain.
