On January 1, 2016, Tiny Tim Industries had outstanding $1,000,000 of 12% bonds
ID: 2423210 • Letter: O
Question
On January 1, 2016, Tiny Tim Industries had outstanding $1,000,000 of 12% bonds with a book amount of $966,130. The indenture specified a call price of $981,000. The bonds were issued previously at a price to yield 14%. Tiny Tim called the bonds (retired them) on July 1, 2016. What is the amount of the loss on early extinguishment?
MSG Corporation issued $100,000 of 3-year, 6% bonds outstanding on December 31, 2015 for $106,000. MSG uses straight-line amortization. On May 1, 2016, $10,000 of the bonds were retired at 112. As a result of the retirement, MSG will report:
Please show steps and calculations. Thanks.
Explanation / Answer
Interest expense (7% × $966,130)
67,629
Discount on bonds payable (difference)
7,629
Cash (6% × $1,000,000)
60,000
Bonds payable (face amount)
1,000,000
Loss on early extinguishment (to balance)
7,241
Discount on bonds payable
($1,000,000 - [$966,130 + 7,629])
26,241
Cash (call price)
981,000
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Interest expense (to balance)
133
Bonds payable ([$6,000 × 1/3 × 4/12] × 10%)
67
Interest payable ([$100,000 × 6% × 4/12] × 10%)
200
Bonds payable (book value)
10,553
Loss on early extinguishment (to balance)
667
Cash (call price)
11,200
Paid at redemption: $10,000 × 112% =
$11,200
Book value: [$106,000 - ($6,000 × 1/3 × 4/12)] × 10% =
10,533
Loss
$667
Interest expense (7% × $966,130)
67,629
Discount on bonds payable (difference)
7,629
Cash (6% × $1,000,000)
60,000
Bonds payable (face amount)
1,000,000
Loss on early extinguishment (to balance)
7,241
Discount on bonds payable
($1,000,000 - [$966,130 + 7,629])
26,241
Cash (call price)
981,000