Extinguishment of Bonds Prior to Maturity On December 1, 2014, Cone Company issued its 8%, $530,000...
Extinguishment of Bonds Prior to Maturity
On December 1, 2014, Cone Company issued its 8%, $530,000 face value bonds for $610,000, plus accrued interest. Interest is payable on November 1 and May 1. On December 31, 2016, the book value of the bonds, inclusive of the unamortized premium, was $560,000. On July 1, 2017, Cone reacquired the bonds at 99 plus accrued interest. Cone appropriately uses the straight-line method for the amortization because the results do not materially differ from those of the effective interest method.
Required:
Prepare a schedule to compute the gain or loss on this redemption of debt. Enter all values as positive values.
| Cone Company | |
| Computation of Gain on Extinguishment of Debt | |
| July 1, 2017 | |
| Book value of bonds on December 1, 2014 | $ |
| Book value of bonds on December 31, 2016 | |
| Amortization for 25 months | $ |
| Monthly amortization | $ |
| Book value of bonds on December 31, 2016 | $ |
| Amortization for 2017 to July 1, 2017 | |
| Book value of bonds on July 1, 2017 | $ |
| Cost of reacquisition | |
| Gain on bond redemption | $ |
Homework Answers
Answer
| Computation of Gain on Extinguishment of Debt July 1 2017 | |
| Book Value of Bonds on December 1 2014 | $ 610,000 |
| Book Value of Bonds on December 31 2016 | $ (560,000) |
| Amortization for 25 months | $ 50,000 |
| Monthly amortization ($50,000 / 25 months) | $ 2,000 |
| Book value of bonds on December 31, 2016 | $ 560,000 |
| Amortization for 2017 to July 1, 2017 ($2,000 x 6 months) | $ (12,000) |
| Book value of bonds on July 1, 2017 | $ 548,000 |
| Cost of reacquired | $ (524700) |
| Gain on bond redemption | $ 23300 |
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Extinguishment of Bonds Prior to Maturity
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