In 2010, Awnings, Inc., issues $200,000 of 15%, 20-year bonds payable at par. During 2016, when Awnings'

Question:

In 2010, Awnings, Inc., issues $200,000 of 15%, 20-year bonds payable at par. During 2016, when Awnings' bonds are trading at 93, the company purchases and retires $100,000 par value of the bonds.

Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.

Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...