Question

On January 1,2021, Apple Company issued$840,000 of 8%,10-year bonds for 97. Apple retired all of these bonds on January 1,2022,at 102.If Apple uses the straight-line amortization,how

much loss should be recognized on this bond retirement?

Answer 1

Issue price = $840,000*97% Issue price = $814,800 Discount on bonds payable = $840,000 - $814,800 Discount on bonds payable = $25,200 Annual amortization of discount = $25,200/10 Annual amortization of discount = $2,520 Unamortized discount on bonds payable = $25,200 - $2,520 Unamortized discount on bonds payable = $22,680 Carrying value of bonds as on 1/1/2022 = $340,000 - $22,680 Carrying value of bonds as on 1/1/2022 = $817,320 Redemption value of bonds = $840,000*102% Redemption value of bonds = $856,800 Loss on bond retirement = $856,800 - $817,320 Loss on bond retirement = $39,480