On its December 31, 2017 statement of financial position, Codfish Ltd.reported bonds payable of $1,000,000.The bonds had been issued at par.On January 2, 2018, Codfish retired one half of the outstanding bonds at 103 plus a call premium of $35,000.Ignoring income taxes, what amount should Codfish report on its 2018 income statement as loss on extinguishment of debt?

Question

Quizplus · Accepted Answer

The loss on extinguishment of debt is calculated as the difference between the reacquisition price and the net carrying amount of the bonds retired. The reacquisition price is $515,000 (half of $1,000,000 at 103% = $515,000). The net carrying amount of the bonds retired is $500,000 (half of $1,000,000). The call premium is $35,000. Therefore, the loss is $515,000 - $500,000 + $35,000 = $50,000.

On Its December 31, 2017 Statement of Financial Position, Codfish