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Homework answers / question archive / The 10% bonds payable of Jacobs Company had a net carrying amount of $1,140,000 on January 1, 20x5 (after interest payment)
The 10% bonds payable of Jacobs Company had a net carrying amount of $1,140,000 on January 1, 20x5 (after interest payment). The bonds, which had a face value of $1,200,000, 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, 20X5, several years before their maturity, Jacobs retired the bonds at 102. The interest payment on July 1, 20X5 was made as scheduled. What is the loss that Jacobs should record on the early retirement of the bonds on July 2, 20X5? Ignore taxes.
Loss is difference between Carrying value and Returement Price
| Face Value of Bond (a) | $ 1,200,000 |
| Yield | 12% |
| Carrying Value Jan 1 20X5 (b) | $ 1,140,000 |
| Interest (c = b*12%*6/12) | $ 68,400 |
| Less: Coupon payment (d= a*10%*6/12) | $ 60,000 |
| Carrying Value July 1, 20X5 (e = b+c-d) | $ 1,148,400 |
| Retirement Price received July 2, 20X5 (f) (a*102%) | $ 1,224,000 |
| Loss on early retirement of bonds (e- f) | $ (75,600) |
