Acme Entertainment had $1,600,000 of 6%, $1,000 par callable bonds outstanding on December 31, 2019, with a carrying value of $1,700,000. Acme decides to call the bonds on January 2, 2020. The call price is 103. Compute the gain or loss on early extinguishment of debt.
A) no gain or loss
B) loss of $100,000
C) gain of $52,000
D) loss of $48,000

Question

Quizplus · Accepted Answer

The gain on early extinguishment of debt is calculated as the difference between the carrying value of the bonds and the call price. In this case, the carrying value is $1,700,000 and the call price is $1,630,000 (103% of $1,600,000). Therefore, the gain on early extinguishment of debt is $70,000 ($1,700,000 - $1,630,000).

Acme Entertainment Had $1,600,000 of 6%, $1,000 Par Callable Bonds