On May 1, 2013, Metro Company has bonds with balances as shown below. If Metro retires the bonds for $52,000, what will be the effect on the income statement?

Question

On May 1, 2013, Metro Company has bonds with balances as shown below.  If Metro retires the bonds for $52,000, what will be the effect on the income statement?

Quizplus · Accepted Answer

To determine the effect on the income statement, we need to compare the carrying value (the balance in the Bonds Payable account) with the cash paid to retire the bonds. In this case, the carrying value of the bonds is $55,140 ($53,000 + $2,140), but Metro only paid $52,000 to retire them. Therefore, there will be a loss on retirement of $3,140 ($55,140 - $52,000). Option A is the correct choice as it represents the loss on retirement.

On May 1, 2013, Metro Company Has Bonds with Balances