On February 1, 2015, Davis Corporation issued 12%, $1,000,000 par, 10-year bonds for $1,117,000. Davis reacquired all of these bonds at 102% of par, plus accrued interest, on May 1, 2018, and retired them. The unamortized bond premium on that date was $78,000. Required: Before income taxes, what was Davis's gain or loss on the bond extinguishment?

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4 November, 18:07

On February 1, 2015, Davis Corporation issued 12%, $1,000,000 par, 10-year bonds for $1,117,000. Davis reacquired all of these bonds at 102% of par, plus accrued interest, on May 1, 2018, and retired them. The unamortized bond premium on that date was $78,000. Required: Before income taxes, what was Davis's gain or loss on the bond extinguishment?

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Cristian Lyons · Answer 1

gain on the bond extinguishment 58,000

Explanation:

Carrying value of the bonds at redemption:

face value + unamortized premium on bonds

1,000,000 + 78,000 = 1,078,000

are retired at 102%

1,000,000 x 102% = 1,020,000

Gain on the bond extinguishment

carrying value - retired:

1,078,000 - 1,020,000 = 58,000

the journal entry will be:

bonds payable 1,000,000

premium on bond 78,000

cash 1,020,000

gain on bond redemption 58,000