On January 1, 2020, Siamese Inc. redeemed its 15-year, $ 600,000 par value bonds at 103. They were originally issued on January 1, 2008 at 98 with a maturity date of January 1, 2023. Siamese amortizes bond discounts and premiums using the straight-line method. Ignoring income taxes, what amount of loss should Siamese recognize on the redemption of these bonds?

Question

Quizplus · Accepted Answer

The carrying value of the bonds on January 1, 2020 (the redemption date) is calculated as follows:
Original issue price = $600,000 × 98% = $588,000
Discount amortization per year = ($600,000 − $588,000) ÷ 15 years = $800
Discount amortization for 12 years (2008−2019) = $800 × 12 = $9,600
Carrying value on January 1, 2020 = $588,000 + $9,600 = $597,600
Redemption price = $600,000 × 103% = $618,000
Loss on redemption = Redemption price − Carrying value = $618,000 − $597,600 = $20,400. 
Therefore, the amount of loss that Siamese should recognize on the redemption of these bonds is $20,400.