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madreJ [45]
4 years ago
11

On January 1, 2021, Tiny Tim Industries had outstanding $1,000,000 of 9% bonds with a book value of $970,500. The indenture spec

ified a call price of $987,000. The bonds were issued previously at a price to yield 11% 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?
Business
1 answer:
nevsk [136]4 years ago
6 0

Answer:

loss at extinguishment 8,122.50 dollars

Explanation:

we should compare the amount we pay for the bonds and the book value of the bonds:

book value   978,877.50*

call price   <u>   (987,000.00)  </u>

loss                    (8,122.50)

*We are given with the value at January 1st we must adjust for the value at july 1st using effective-rate method

970,500 x 11%/2 = 53,377.5 interest expense

1,000,000 x 9%/2 = 45,000 cash outlay

amortization               8,377.5

<em><u /></em>

<em><u>carrying value:</u></em>

970,500 + 8,377.5 = 978,877.5

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<u>Favourable Changes:</u>

Sales

Gross Profit

Operating Income

Interest Expense

Net Income

<u>Unfavourable Changes:</u>

Cost Of Sales  

Selling Expenses  

General Expenses

Other Revenue

Income Taxes

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Observe Movement from 2018 results to 2019 results

                                        Erie Corp

                   Vertical Analysis of Income Statement

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<u>Less Operating Expenses</u>

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Operating Income                                   220                       110

<u>Less Non- Operating Expenses</u>

Other Revenue                                            4                          7

Interest Expense                                         2                          9

Income Taxes                                           134                        66

Net Income                                                88                        42

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