On January 1, 2016, Bonita Industries issued 3900 of its 10%, $1,000 bonds for $4056000. These...
On January 1, 2016, Bonita Industries issued 3900 of its 10%, $1,000 bonds for $4056000. These bonds were to mature on January 1, 2026 but were callable at 101 any time after December 31, 2019. Interest was payable semiannually on July 1 and January 1. On July 1, 2021, Bonita called all of the bonds and retired them. Bond premium was amortized on a straight-line basis. Before income taxes, Bonita's gain or loss in 2021 on this early extinguishment of debt was $31200 gain. $39000 loss. $117000 gain. $46800 gain.
Homework Answers
Answer:
Face Value of Bonds = 3,900 * $1,000 = $3,900,000
Issue Price of Bonds = $4,056,000
Premium on Bonds Payable = Issue Price of Bonds - Face Value of
Bonds
Premium on Bonds Payable = $4,056,000 - $3,900,000
Premium on Bonds Payable = $156,000
Life of Bonds = 10 years or 20 semi-annual periods
Premium on Bonds Payable to be amortized semi-annually =
$156,000/ 20
Premium on Bonds Payable to be amortized semi-annually = $7,800
Premium on Bonds Payable amortized till July 1, 2021 = $7,800 *
11
Premium on Bonds Payable amortized till July 1, 2021 = $85,800
Unamortized Premium on Bonds Payable = $156,000 - $85,800
Unamortized Premium on Bonds Payable = $70,200
Carrying value of bonds = $4,056,000 - $85,800
Carrying value of bonds = $3,970,200
Callable price paid = 3,900 * $1,000 * 101%
Callable price paid = $3,939,000
Gain (Loss) on extinguishment of Debt = Carrying Value of Bonds
- Callable price
Gain (Loss) on extinguishment of Debt = $3,970,200 -
$3,939,000
Gain (Loss) on extinguishment of Debt =
$31,200
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