The long-term liability section of Mayflower Digital Corporation\'s balance shee
ID: 2332863 • Letter: T
Question
The long-term liability section of Mayflower Digital Corporation's balance sheet as of December 31, 2017, included 696 bonds having a face amount of $800,000 and a remaining discount of $70,080. Disclosure notes indicate the bonds were issued to yield 8%. Interest expense is recorded at the effective interest rate and paid onJanuary 1 and July 1 of each year. On July 1, 2018, Mayflower Digital retired the bonds at 101 before their scheduled maturity. What is the amount of gain (loss) on early extinguishment of bonds? o $(64.303) O $72,883 $(72.883) $(69,432)Explanation / Answer
Correct answer is: ($72,883) Workings: Computation of gain or loss on Extinguishment of bonds as on July 1, 2018: Carrying Value of bonds = $8,00,00 - $70,080 = $ 7,29,920 Interest Expense = $7,29,920 X 4% = $ 29,197 Cash payment = $8,00,000 X 3% = $ 24,000 Discount Amortization = $29,197 - $24,000 = $ 5,197 01-Jul-18 New Carrying Value = $7,29,920 + $5,197 = $ 7,35,117 Redemption Value = $8,00,000 X 1.01 = $ 8,08,000 Gain / Loss on Redemption = New Carrying Value - Redemption Value = $735,117 - $8,08,000 Loss on Redemption = $ -72,883
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