Answer:
Loss on retirement is $8190
Step-by-step explanation:
In order to determine the gain or loss on the retirement of the 20% of the bonds,one needs to know the book value of the bonds retired.
First,we calculate the book value of the entire bond as follows
Initial carrying value=$700,000*97.75%=$ 684,250.00
Initial discount on bonds issue=face value -issue price
=$700,000-$684,250
=$15750
Discount amortized over 6 years out of 15 years=15750
*6/15=$6300
Unamortized discount==$15,750
-$6300=$9450
The book value of the bond now=face value-unamortized discount
=$700,000-$9450
=$690,550
book value of 20% bonds=$690550
*20%=$138,110
cash paid for retirement=$700,000*20%*104.5%=$146,300
loss on retirement=$146,300-$138,100=$8190
