Question

The 12% bonds payable of Desert Company had a carrying amount of $4,136,341 on December 31, 2020. The bonds, which had a face value of $4,000,000, were issued at a premium to yield 10%. Desert uses the effective interest method of amortization. Interest is paid semiannually on June 30th and December 31st. On June 30, 2021, several years before their maturity, Desert retired the bonds at 104 plus accrued interest. The loss on retirement, ignoring taxes, is?

Answer 1

Answer:

$56,842

Explanation:

Calculation to determine what The loss on retirement, ignoring taxes, is

First step is to calculate the CV of bonds

CV of bonds=$4,136,341 – [($4,000,000 × .06) – ($4,136,341 × .05)]

CV of bonds=$4,136,341 –($240,000-$206,817)

CV of bonds=$4,136,341 – $33,183

CV of bonds=$4,103,158

Now let calculate the Loss on retirement

Loss on retirement=($4,000,000 × 1.04) –$4,103,158

Loss on retirement =$4,160,000-$4,103,158

Loss on retirement =$56,842

Therefore The loss on retirement, ignoring taxes, is $56,842