The carrying value of $100,000 face value bonds at the end of the third year, December 31, is $96,454. The stated rate is 8%; the effective rate is 10%. Interest is payable semiannually. On April 1, Year 4, the bonds are purchased on the market for $97,000 plus accrued interest. What is the gain or loss on retirement?

1. Loss of $546
2. Loss of $2135
3. Gain of $1865
4. Loss of $135