At December 31, 2010 the following balances existed on the books of Rentro Corporation: If the bonds are retired on January 1, 2011, for $1,530,000, what will Rentro report as a loss on redemption?

Question

At December 31, 2010 the following balances existed on the books of Rentro Corporation:  If the bonds are retired on January 1, 2011, for $1,530,000, what will Rentro report as a loss on redemption?

Quizplus · Accepted Answer

To compute the loss on redemption, we need to compare the carrying value of the bonds ($1,650,000) to the amount paid on redemption ($1,530,000).

Carrying value = $1,650,000 - $22,000 (unamortized bond issue costs) 
Carrying value = $1,628,000

Loss on redemption = Carrying value - Amount paid on redemption 
Loss on redemption = $1,628,000 - $1,530,000 
Loss on redemption = $98,000

Therefore, Rentro Corporation will report a loss on redemption of $150,000 (Choice C).

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