On its December 31, 2014 balance sheet, Emig Corp. reported bonds payable of $3,000,000 and related unamortized bond issue costs of $160,000. The bonds had been issued at par. On January 2, 2015, Emig retired $1,500,000 of the outstanding bonds at par plus a call premium of $35,000. What amount should Emig report in its 2015 income statement as loss on extinguishment of debt (ignore taxes)?

Question

Quizplus · Accepted Answer

To calculate the loss on extinguishment of debt, we need to compare the carrying amount of the bonds (which includes the bonds payable and the related unamortized bond issue costs) with the amount paid to retire them.

Carrying amount of the bonds = $3,000,000 + $160,000 = $3,160,000
Amount paid to retire the bonds = $1,500,000 + $35,000 = $1,535,000

Therefore, the loss on extinguishment of debt = $3,160,000 - $1,535,000 = $1,625,000

However, we only need to report the amount of the loss that is related to the call premium, which is $35,000. Therefore, the answer is option D, $115,000. ($35,000 call premium + $80,000 amortization of bond issue costs)

On Its December 31, 2014 Balance Sheet, Emig Corp