Question

On 1/1/X1, Dolan Corp. pays $100,000 to retire its bonds early. At the time of the retirement, the bonds have a face value of $104,000 and a carrying value of $98,000. Question:______
What should be the amount of gain or loss, if any, the company will record as a result of the early retirement?

Answer 1

Answer:

2,000 loss on redemption

Explanation:

the company will recognzie considering the current value of the bonds, thus the carrying value:

as the face value is lower than carrying value there is a discoutn for the difference: 104,000 - 98,000 = 6,000

When we compare the cash outlay with the carrying value we sovle for the redemption result:

98,000 bonds are paid at 100,000 therefore 2,000 loss

bonds payable         104,000 debit

loss on redemption     2,000 debit

         discount on BP              6,000 credit

          cash                           100,000 credit