Exercise 14-12 on january 2, 2012, metlock corporation issued $1,250,000 of 10% bonds at 97 due december 31, 2021. interest on the bonds is payable annually each december 31. the discount on the bonds is also being amortized on a straight-line basis over the 10 years. (straight-line is not materially different in effect from the preferable "interest method".) the bonds are callable at 102 (i. e., at 102% of face amount), and on january 2, 2017, metlock called $750,000 face amount of the bonds and redeemed them. ignoring income taxes, compute the amount of loss, if any, to be recognized by metlock as a result of retiring the $750,000 of bonds in 2017. (round answer to 0 decimal places, e. g. 38,548.)

the loss on the call was for 26,250

Explanation:

TO know the gain or loss, we will compare the call value with the book value

call value = face value x call points

750,000 x 102/100 = 765,000 call

then book value, will be face value less carrying value of discount

face value:

discount 750,000 x 3% = 22,500

amortization on discount:

22,500/10 = 2,250 per year x 5 years to 2016 from 2012 = 11,250

discount at Jan 2th, 2017 22,500 - 11,250 = 11,250

book value 750,000 - 11,250 discount = 738,750

book value 738,750

call value   (765,000)

loss               (26,250)

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