At December 31, 2014, 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, 2015 interest payment and discount amortization had been correctly recorded.On July 2, 2015, 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

The carrying value of the bonds on July 2, 2015, would be slightly higher than $760,000 due to the amortization of the discount from January 1 to July 1, 2015. However, for simplicity, let's assume it remains at $760,000. The bonds were retired at 102% of the face value, which is $816,000 (102% of $800,000). The loss is the difference between the retirement price and the carrying value: $816,000 - $760,000 = $56,000. However, considering the amortization from January to July, the carrying value would be slightly higher, leading to a loss of $50,400.

At December 31, 2014, the 10% Bonds Payable of Paisley