A bond with a $750,000 maturity value is immediately retired for $745,000 plus accrued interest.The discount on bonds payable (bond discount)at the retirement date is $25,500.Which of the following statements is correct?
A)The gain on the debt extinguishment is $5,000.
B)The loss on the debt extinguishment is $20,500.
C)The gain on the debt extinguishment is $30,500.
D)The gain or loss on the debt extinguishment can't be determined without knowing the dollar amount of the accrued interest.

Question

Quizplus · Accepted Answer

The loss ($20,500)is the difference between the book value ($724,500)and the amount paid ($745,000)to retire the bonds;a loss results because the payment is greater than book value.

A Bond with a $750,000 Maturity Value Is Immediately Retired