On January 1, 2011, F Corp. issued 2,000 of its 10%, $1,000 bonds for $2,080,000

Question

On January 1, 2011, F Corp. issued 2,000 of its 10%, $1,000 bonds for $2,080,000. These bonds were to mature on January 1, 2021, but were callable at 101 any time after December 31, 2014. Interest was payable semiannually on July 1 and January 1. On July 1, 2016, F called all of the bonds and retired them. The bond premium was amortized on a straight-line basis. Before incometaxes, F Corp.'s gain or loss in 2016 on this early extinguishment of debt was:

a.$16,000 gain.

b.$20,000 loss.

c.$24,000 gain.

d.$60,000 gain.

Explanation / Answer

Bond premium at issue $80,000
Amortization of premium through July 1, 2016:
$80,000/20 = $4,000 per period$
4,000 x 11 periods $44,000
Unamortized premium July 1, 2016 $36,000
Face value $2,000,000
Book value July 1, 2016 $2,036,000
Call (redemption) price
$2,000,000 x 1.01 $2,020,000
Gain on extinguishment $16,000

Option a.$16,000 gain is correct answer.

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.