On January 1, 2013, Swifty Corporation issued 2100 of its 10%, $1,000 bonds for $2184000. These...
On January 1, 2013, Swifty Corporation issued 2100 of its 10%, $1,000 bonds for $2184000. These bonds were to mature on January 1, 2023 but were callable at 101 any time after December 31, 2016. Interest was payable semiannually on July 1 and January 1. On July 1, 2018, Swifty called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Before income taxes, Swifty's gain or loss in 2018 on this early extinguishment of debt was
Homework Answers
Answer
- All working forms part of the answer
- Answer: GAIN in 2018 on early extinguishment of debt = $ 16,800
|
A |
Bonds Face Value |
$2,100,000 |
|
B |
Issue Price |
$2,184,000 |
|
C = B - A |
Premium on Bonds Payable |
$84,000 |
|
D |
Term [years] |
10 |
|
E = C/20 interest payment |
Straight Line amortisation with every interest payment |
$4,200 |
|
Amortisation of Premium: |
||
|
01-Jul-13 |
$4,200 |
|
|
01-Jan-14 |
$4,200 |
|
|
01-Jul-14 |
$4,200 |
|
|
01-Jan-15 |
$4,200 |
|
|
01-Jul-15 |
$4,200 |
|
|
01-Jan-16 |
$4,200 |
|
|
01-Jul-16 |
$4,200 |
|
|
01-Jan-17 |
$4,200 |
|
|
01-Jul-17 |
$4,200 |
|
|
01-Jan-18 |
$4,200 |
|
|
01-Jul-18 |
$4,200 |
|
|
F |
Total Premium Amortised |
$46,200 |
|
G = C - F |
Unamortised Premium when Bonds were called |
$37,800 |
|
H = A + G |
Carrying Value at the time of retirement |
$2,137,800 |
|
I = A x 101/100 |
Called at |
$2,121,000 |
|
J = H - I |
Gain on early extinguishment |
$16,800 = Answer |
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extinguishment of...
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1 question 2 parts
When bonds and other debt are issued, costs such as legal costs, printing costs, and underwriting fees are referred to as debt issue costs. When debt issue costs are incurred: The recorded amount of the debt is increased by the debt issue costs. The decrease in the effective interest rate caused by the debt issue costs is reflected in the interest expense The increase in the effective interest rate caused by the debt issue costs is...
On July 1, 2016, Swifty Corporation issued 8% bonds in the face
amount of $13900000, which mature on July 1, 2022. The bonds were
issued for $13280000 to yield 9%, resulting in a bond discount of
$620000. Swifty uses the effective-interest method of amortizing
bond discount. Interest is payable annually on June 30. At June 30,
2018, Swifty's unamortized bond discount should be
$446112.
$475712.
$463712.
$433712.
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