At December 31 2017 the following balances existed for Sween

At December 31, 2017, the following balances existed for Sweeney Corporation: Bonds Payable (10%) $1,500,000 Discount on Bonds Payable 120,000 The bonds mature on 12/31/27. Straight-line amortization is used. If 40% of the bonds are retired at 103 on January 1, 2019, what is the loss on early extinguishment?

Solution

Calculate loss on early extinguishment :

Bonds payable = 1500000

Discount on bonds payable = 120000

Annual amortization = 120000/10 = 12000 per annuam

Carrying value of bonds = 1500000-(120000-12000) = 1392000

Carrying value of 40% bonds payable = 1392000*40% = $556800

Retirement value = 1500000*1.03*40% = 618000

Loss on early extinguishment = 618000-556800 = $61200