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6 June, 16:04

The 10% bonds payable of Nixon Company had a net carrying amount of $2,850,000 on December 31, 2017. The bonds, which had a face value of $3,000,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2018, several years before their maturity, Nixon retired the bonds at 102. The interest payment on July 1, 2018 was made as scheduled. What is the loss that Nixon should record on the early retirement of the bonds on July 2, 2018? Ignore taxes.

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  1. 6 June, 17:38
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    The loss that Nixon should record on the early retirement of the bonds on July 2, 2018 is $189,000

    Explanation:

    In order to calculate the loss that Nixon should record on the early retirement of the bonds on July 2, 2018 we would have to make the following calculation:

    loss that Nixon should record on the early retirement of the bonds on July 2, 2018=Carrying value of bonds as on Dec. 31, 2017+interest-interest paid-Retirement value

    Carrying value of bonds as on Dec. 31, 2017=$2,850,000

    interest at 6%=$171,000

    interest paid = $3,000,000*5% = $150,000

    Retirement value = $3,000,000*102%=$3,060,000

    loss that Nixon should record on the early retirement of the bonds on July 2, 2018=$2,850,000 + $171,000 - $150,000-$3,060,000

    loss that Nixon should record on the early retirement of the bonds on July 2, 2018=$189,000

    The loss that Nixon should record on the early retirement of the bonds on July 2, 2018 is $189,000
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