On July 1, 2014, Miniature Company has bonds with balances as shown below. If the company retires the bonds for $66,150, what will be the effect on the income statement?
A)loss on retirement of $4,400
B)gain on retirement of $4,400
C)sales revenue of $61,750
D)no effect on net income

Question

On July 1, 2014, Miniature Company has bonds with balances as shown below.  If the company retires the bonds for $66,150, what will be the effect on the income statement?
A)loss on retirement of $4,400 
B)gain on retirement of $4,400 
C)sales revenue of $61,750 
D)no effect on net income

Quizplus · Accepted Answer

The carrying value of the bonds is $70,550 ($68,000 + $2,550). If the company retires the bonds for $66,150, they will have a loss on retirement of $4,400 ($70,550 - $66,150). This loss will reduce net income and be reported on the income statement.

On July 1, 2014, Miniature Company Has Bonds with Balances