Didde Company issues $20,000,000 face value of bonds at 96 on January 1, 2013. The bonds are dated January 1, 2013, pay interest semiannually at 8% on June 30 and December 31, and mature in 10 years. Straight-line amortization is used for discounts and premiums. On September 1, 2016, $12,000,000 of the bonds are called at 102 plus accrued interest. What gain or loss would be recognized on the called bonds on September 1, 2016?
A) $1,200,000 loss
B) $544,000 loss
C) $720,000 loss
D) $907,000 loss

Question

Quizplus · Accepted Answer

The loss recognized on the called bonds includes the difference between the call price and the book value of the bonds. The book value is calculated by considering the initial discount and the amortization of that discount over the period until the call date. The call price is 102% of the face value of the called bonds, plus accrued interest. The calculation involves determining the unamortized discount at the call date and adding it to the call premium over the face value. The specific numbers for the calculation are not provided here, but the correct approach involves these steps, leading to the recognition of a $544,000 loss.

Didde Company Issues $20,000,000 Face Value of Bonds at 96