1) Acme Entertainment had $2,000,000 of callable bonds outstanding on December 3

Question

1) Acme Entertainment had $2,000,000 of callable bonds outstanding on December 31, 2017. The ten-year bonds were issued on January 1, 2010 for $2,150,000 and incurred $100,000 in bond issue costs. Acme can call the bonds at 102 anytime after January 1, 2016. The company uses straight-line amortization for bond issue costs and bond premium. Acme decides to call the bonds on January 2, 2018. Compute the gain or loss on early extinguishment of debt. A) no gain or loss B) loss of $30,000 C) gain of $30,000 D) loss of $40,000

Explanation / Answer

No. of Callable Bonds Outstanding =$2000000

Face Value = 100

Redamble value = 102

Loss per Bond = $2

Total Loss =$ 2000000/100

                 =20000

LOSS = 20000*$2

          =$40000

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