At December 31, 2010 the following balances existed on the books of Foxworth Corporation: If the bonds are retired on January 1, 2011, for $2,040,000, what will Foxworth report as a loss on redemption?

Question

At December 31, 2010 the following balances existed on the books of Foxworth Corporation:  If the bonds are retired on January 1, 2011, for $2,040,000, what will Foxworth report as a loss on redemption?

Quizplus · Accepted Answer

To calculate the loss on redemption, we need to compare the carrying amount of the bonds (face value minus unamortized discount) to the amount paid to retire the bonds.

Carrying amount of bonds = $2,100,000 (face value) + $50,000 (unamortized discount) = $2,150,000

Loss on redemption = Carrying amount of bonds - Amount paid to retire bonds = $2,150,000 - $2,040,000 = $110,000

Therefore, Foxworth will report a loss on redemption of $110,000, which is closest to option B ($200,000).

At December 31, 2010 the Following Balances Existed on the Books