On January 1, 2001, Fox Corp. issued 1,000 of its 10%, $1,000 bonds for $1,040,000. These bonds were to mature on January 1, 2011 but were callable at 101 any time after December 31, 2004. Interest was payable semiannually on July 1 and January 1. On July 1, 2006, Fox called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Before income taxes, Fox’s gain or loss in 2006 on this early extinguishment of debt was

  1. $30,000 gain.
  2. $12,000 gain.
  3. $10,000 loss.
  4. $ 8,000 gain.