The December 31, 2010, balance sheet of Hess Corporation includes the following items:

9% bonds payable due December 31, 2019 $1,000,000

Unamortized premium on bonds payable 27,000

The bonds were issued on December 31, 2009, at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1, 2011, Hess retired $400,000 of these bonds at 98 plus accrued interest.

What should Hess record as a gain on retirement of these bonds? Ignore taxes.

a. $18,800.

b. $10,800.

c. $18,600.

d. $20,000.

The answer is =

1027000 - (27000/18 x 2/6) =$410,600

410600 ($400,000 .98) = $18,600. Why?