1 answer

2. (P14-13) The 10% bonds payable of Nico had a net carrying amount of $1,140,000 on...

Question:

2. (P14-13) The 10% bonds payable of Nico had a net carrying amount of $1,140,000 on December 31, 2017. The bonds, which had
2. (P14-13) The 10% bonds payable of Nico had a net carrying amount of $1,140,000 on December 31, 2017. The bonds, which had a face value of $1,200,000, were issued at a discount to yield 12%. Amortization was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. The interest payment on July 1, 2018 was made as scheduled in the morning. Later that day, several years before their maturity, Nico retired the bonds at 102. What is the loss that NiCo should record on the early retirement of the bonds on July 2, 2018? Ignore taxes. First update the information in the amortization chart. First consider only the interest payments, then consider the sale. a. $24,000. b. $67,200. C. $75,600. d. $84,000.

Answers

The answer will be option “c” $75,600

Calculations and explanations: We will first compute the carrying value of the bonds. Carrying value = 1,140,000 + [(1,140,000*0.06) – (1,200,000*0.05)]

= 1,148,400

Now loss = (12,00,000*1.02) – 1,148,400

= 1,224,000 – 1,148,400

= 75,600

.

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