On 1/1/X1, Dolan Corp. pays $100,000 to retire its bonds early. At the time of the retirement, the bonds have a face value of $1

Question

2 years ago

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On 1/1/X1, Dolan Corp. pays $100,000 to retire its bonds early. At the time of the retirement, the bonds have a face value of $1

04,000 and a carrying value of $98,000. Question: What should be the amount of gain or loss, if any, the company will record as a result of the early retirement?

Mathematics

1 answer:

maw [93] · Answer 1 · 2023-03-30T17:00:14+03:00

Answer: The company has to record a loss of $2,000

Step-by-step explanation:

The accounting for bonds retired early would require the company to pay out cash to remove the bonds payable from its balance sheet. To determine the gain or loss, <em>if the cash paid is less than the carrying value of the bond</em>, then a gain is determined, <em>if the cash paid is more than the carrying value of the bond</em>, then a loss is determined.

From the question the company pays $100,000 which is more than the carrying value of $98,000. Therefore, the company would record a loss $2,000.