On January 1, 2004, Cardinal Corporation issued 5% 25-year bonds at par and used the $12,000,000 proceeds to finance the construction of a new plant. On January 1, 2014, the company acquired the bonds on the open market for $11,500,000. Assuming that Cardinal Corporation is neither bankrupt nor insolvent, the acquisition and retirement of the bonds results in which of the following:

On January 1, 2004, Cardinal Corporation issued 5% 25-year bonds at par and used the $12,000,000 proceeds to finance the construction of a new plant. On January 1, 2014, the company acquired the bonds on the open market for $11,500,000. Assuming that Cardinal Corporation is neither bankrupt nor insolvent, the acquisition and retirement of the bonds results in which of the following:

On January 1, 2004, Cardinal Corporation issued 5% 25-year bonds at par and used the $12,000,000 proceeds to finance the construction of a new plant. On January 1, 2014, the company acquired the bonds on the open market for $11,500,000. Assuming that Cardinal Corporation is neither bankrupt nor insolvent, the acquisition and retirement of the bonds results in which of the following:



a. The company must recognize a $500,000 gain.
b. The company can make an election to recognize a $500,000 gain or reduce the company's basis in the plant by $500,000.
c. The company must recognize a $500,000 gain and increase the company's basis in the plant by $500,000.
d. The company can amortize the $500,000 gain, recognizing income over the remaining life of the bonds.
e. None of these.


Answer: a


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