On July 1,2008 Magda Corporation issued for $960,000 one thousand of its 9 percent,$1,000 callable bonds.The bonds are dated July 1,2008,and mature on July 1,2018.Interest is payable semiannually on January 1 and July 1.Magda uses the straight-line method of amortizing bond discount.The bonds can be called by the issuer at 101 at any time after June 30,2013.On July 1,2014,Magda called in all of the bonds and retired them.Ignoring income taxes,how much loss should Magda report on this early extinguishment of debt for the year ended December 31,2014?

Question

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The bonds were issued at a discount of $40,000 ($1,000,000 - $960,000) and this discount is amortized over 10 years, resulting in $4,000 amortized per year. By July 1, 2014, 6 years of amortization would have occurred, totaling $24,000. The unamortized discount is $16,000 ($40,000 - $24,000). The call price is $1,010,000 (101% of $1,000,000). The carrying amount of the bonds on July 1, 2014, is $984,000 ($1,000,000 - $16,000). The loss on extinguishment is $26,000 ($1,010,000 - $984,000).

On July 1,2008 Magda Corporation Issued for $960,000 One Thousand