On September 30, 2014, Queen Co. had outstanding 10%, $3,000,000 face value bond

Question

On September 30, 2014, Queen Co. had outstanding 10%, $3,000,000 face value bonds maturing on September 30, 2019. Interest is payable semiannually on March 31 and September 30. On September 30, 2014, after amortization of the bond premium was recorded for the period, the unamortized bond premium and bond issuance costs were $50,000 and $30,000, respectively. On that date, Queen acquired all its outstanding bonds on the open market at 102 and retired them. At September 30, 2014, what amount should Queen recognizeas gain or loss before income taxes on redemption of the bonds?

$0

$40,000 loss

$40,000 gain

None of the above.

A.

$0

B.

$40,000 loss

C.

$40,000 gain

D.

None of the above.

Explanation / Answer

Journal:

Amount paid to reacquire the bonds from market $ 30,60,000 Add: unamortized issue costs $       30,000 $ 30,90,000 Less: Unamortized Premium $       50,000 Face value of the bonds retired $ 30,00,000 $ 30,50,000 Loss on retirement $       40,000

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