At December 31, 2017, the 10% bonds payable of Paisley Inc.had a carrying value of $760,000.The bonds, which had a face value of $800,000, were issued at a discount to yield 12%.The amortization of the bond discount had been recorded using the effective-interest method.Interest was being paid on January 1 and July 1 of each year.The July 1, 2018 interest payment and discount amortization had been correctly recorded.On July 2, 2018, Paisley retired the bonds at 102.Ignoring income taxes, what is the loss that should be recorded on the early retirement of the bonds?

Question

Quizplus · Accepted Answer

Carrying value of bonds payable on December 31, 2017: $760,000
Face value of bonds payable: $800,000
Discount on bonds payable: $40,000 ($800,000 - $760,000)

To calculate the loss on early retirement, we need to compare the carrying value of the bonds to the amount paid to retire them. Paisley Inc. retired the bonds at 102, meaning they paid 102% of the face value, or $816,000.

Loss on early retirement = Carrying value of bonds - Amount paid to retire bonds
Loss on early retirement = $760,000 - $816,000
Loss on early retirement = -$56,000
(Note that the negative sign indicates a loss.)

Therefore, the correct answer is C) $50,400.

At December 31, 2017, the 10% Bonds Payable of Paisley