Igloo Co. sells $397,000 of 12% bonds on June 1, 2020. THe bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2024. THe bonds yield 8%. On October 1, 2021 Igloo buys back $127,040 worth of bonds for $132,040 (includes accrued interest).   Prepare the journal 1 entry for the buyback on Oct 1. I know the entry to record interest expense and premium amort for   Oct 1 is Interest expense 3743          Premium on bond payable is 1339                                                     Cash 5082 I do not know the entry on Oct 1 to record the buy back of bonds

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A:

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.