On January 1, 2021, Tiny Tim Industries had outstanding $1,000,000 of 12% bonds with a book value of $967,000. The indenture specified a call price of $983,500. The bonds were issued previously at a price to yield 14% and interest payable semi-annually on July 1 and January 1. Tiny Tim called the bonds (retired them) on July 1, 2021. What is the amount of the loss on early extinguishment

$8,810

Explanation:

Calculation for What is the amount of the loss on early extinguishment

First step is to calculate the Call price of bond

Call price of bond=$967,000 + ($967,000*(14%/2)) - ($1,000,000*(12%/2))

Call price of bond= $967,000 + ($967,000*7%) - ($1,000,000*6%)

Call price of bond=$967,000+$67,690+$60,000

Call price of bond= $974,690

Now let calculate the Amount of loss on early extinguishment

Amount of loss on early extinguishment = $983,500 - $974,690

Amount of loss on early extinguishment = $8,810

Therefore Amount of loss on early extinguishment will be $8,810

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