On January 1, 2013, Sheffield Corp. issued 3100 of its 10%, $1,000 bonds for $3224000. These...
On January 1, 2013, Sheffield Corp. issued 3100 of its 10%,
$1,000 bonds for $3224000. 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, Sheffield called all of the bonds and retired them. Bond
premium was amortized on a straight-line basis. Before income
taxes, Sheffield's gain or loss in 2018 on this early
extinguishment of debt was
| $24800 gain. |
| $93000 gain. |
| $37200 gain. |
| $31000 loss. |
Homework Answers
Bonds payable = 3,100 * $1,000 = $3,100,000
Bonds premium = $3,224,000 - $3,100,000 = $124,000
Premium amortized each period = $124,000 / 20 = $6,200
Premium amortized = $6,200 * 11 = $68,200
Premium unamortized = $124,000 - $68,200
= $55,800
| Bonds payable | $3,100,000 | |
| Premium (unamortized) | $55,800 | |
| Cash (3,100,000*$101/$100) | $3,131,000 | |
| Gain | $24,800 |
The answer is $24,800 gain.
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