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Extinguishment of Bonds Prior to Maturity On December 1, 2014, Cone Company issued its 10%, $480,000...

Extinguishment of Bonds Prior to Maturity

On December 1, 2014, Cone Company issued its 10%, $480,000 face value bonds for $560,000, plus accrued interest. Interest is payable on November 1 and May 1. On December 31, 2016, the book value of the bonds, inclusive of the unamortized premium, was $510,000. On July 1, 2017, Cone reacquired the bonds at 98 plus accrued interest. Cone appropriately uses the straight-line method for the amortization because the results do not materially differ from those of the effective interest method.

Required:

Prepare a schedule to compute the gain or loss on this redemption of debt. Enter all values as positive values.

Cone Company
Computation of Gain on Extinguishment of Debt
July 1, 2017
Book value of bonds on December 1, 2014 $________
Book value of bonds on December 31, 2016 _______
Amortization for 25 months $__________
Monthly amortization $___________
Book value of bonds on December 31, 2016 $_________
Amortization for 2017 to July 1, 2017 _________
Book value of bonds on July 1, 2017 $_________
Cost of reacquisition __________
Gain on bond redemption $_________

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Answer #1
Computation of Gain on Extinguishment of Debt July 1 2017
Book Value of Bonds on December 1 2014 $   560,000
Book Value of Bonds on December 31 2016 $ (510,000)
Amortization for 25 months $      50,000
Monthly amortization ($50,000 / 25 months) $        2,000
Book value of bonds on December 31, 2016 $   510,000
Amortization for 2017 to July 1, 2017 ($2,000 x 6 months) $   (12,000)
Book value of bonds on July 1, 2017 $   498,000
Cost of reacquisition $ (470,400)
Gain on bond redemption $      27,600
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