On January 1,2016,Tiny Tim Industries had outstanding $1,000,000 of 12% bonds with a book amount of $966,130.The indenture specified a call price of $981,000.The bonds were issued previously at a price to yield 14%.Tiny Tim called the bonds (retired them)on July 1,2016.What is the amount of the loss on early extinguishment?
A)$0.
B)$6,932.
C)$7,241.
D)$7,629

Question

Quizplus · Accepted Answer

The loss on early extinguishment of debt is calculated as the difference between the call price and the book value of the bonds.

Call price = $981,000 
Book value = $966,130

Loss on early extinguishment = $981,000 - $966,130 = $14,870

However, the loss is limited to the unamortized bond issuance costs which are $7,241.

Therefore, the correct answer is (C) $7,241.

On January 1,2016,Tiny Tim Industries Had Outstanding $1,000,000 of 12