Answer: 63,000
Explanation: First, take the carrying value of the bonds at the market interest rate (bond interest expense) and subtract bond interest paid to find the amortized amount: carrying amount is $950,000 with an effective interest rate of 12%.
However, interest is paid semiannually, so all interest rates should be adjusted for semiannual payments: the bond interest expense is $950,000 X 12% x 1/2 = $57,000.
The bond interest paid is the face value x stated interest rate x time period or ($1,000,000 x 10% x 1/2) or $50,000.
The amortized amount is $7,000 ($57,000 – $50,000). The new carrying amount is then $950,000 + $7,000 = $957,000.
Then find the repurchase price $1,000,000 X 1.02 = $1,020,000.
Finally, subtract the purchase price from the carrying amount: $1,020,000 - $957,000 = $63,000 loss on retirement of bonds.
