Question

The CIATS Corp. reported bonds payable of $8,000,000 and related unamortized bond issue costs of $380,000 as of December 31,2016. The bonds were issued at face value. On January 1, 2017. the CIATS Corp retired 50% of the outstanding balance at 102. The pretaz gain or loss that CIATS Corp. reports in its 2017 income statement is: a. Gain of $80,00 b. Loss of $80,00 Gain of $135,00 d. Loss of $270,000 C.

Answer 1

Correct option is "D" - Loss of 270000

Book Value of Bond retired = [carrying value of bond -unamortized bond issue cost ]*% of bond retired

                    = [8000000 -380000 ] *50%

                   = 7620000* 50%

                   = 3810000

Amount paid for reacquisition = par value of bond * % of bond retired * Amount paid per $ 100

             = 8000000*50% *102/100

            = 4080000

Gain /(loss) =book value -Amount paid

                 = 3810000 - 4080000

                 = - 270000 Loss