30- On January 1, 2021, Tiny Tim Industries had outstanding $1,000,000 of 8% bonds with a...
30- On January 1, 2021, Tiny Tim Industries had outstanding $1,000,000 of 8% bonds with a book value of $970,000. The indenture specified a call price of $986,500. The bonds were issued previously at a price to yield 10% and interest payable semi-annually on July 1 and January 1. Tiny Tim called the bonds (retired them) on July 1, 2021. What is the amount of the loss on early extinguishment? Multiple Choice $8,000. $0. $7,659. $8,500.
Homework Answers
Solution:
Book value on 01.07.2021 = $970,000 + Interest expense - Interest payment
= $970,000 + ($970,000*5%) - ($1,000,000*4%)
= $978,500
Call price of bond = $986,500
Amount of loss on early extinguishment = $986,500 - $978,500 = $8,000
Hence first option is correct.
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