A Company Has Bonds Outstanding with a Par Value of $100,000

question 38

Multiple Choice

A company has bonds outstanding with a par value of $100,000. The unamortized premium on these bonds is $2,700. If the company retired these bonds at a call price of 99, the gain or loss on this retirement is:

• A) $1,000 gain.
• B) $1,000 loss.
• C) $2,700 loss.
• D) $2,700 gain.
• E) $3,700 gain.

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Definitions:

After-Tax Earnings

Net income of a business after all taxes have been deducted, indicating the actual profit that remains for shareholders.

Retention Ratio

The proportion of net income that is retained in the company rather than distributed to shareholders as dividends, indicating how much money is reinvested in the business.

Market Price

The rate at which a service or asset can presently be acquired or disposed of in the market.

Book Value

The net value of a company's assets minus its liabilities, often used as an estimate of a company's value if it were to be liquidated.