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At December 31, 2014 the following balances existed on the books of Rentro Corporation: Bonds payable...

At December 31, 2014 the following balances existed on the books of Rentro Corporation: Bonds payable $1,380,000; interest payable $37,000. If the bonds are retired on January 1, 2015, for $1,530,000, what will Rentro report as a loss on extinguishment? Select one: a. $187,000 b. $113,000 c. $150,000 d. $37,000 Clear my choice

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Answer #1

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Fair value of bonds on 1st jan,2015= carrying amount + interest payable

= $ 1,380,000 + $ 37,000

= $ 1,417,000

Sale price of bond on 1st Jan, 2015 = $ 1,530,000

gain on extinguishment of bond = $ 1,530,000 - $  1,417,000

= $ 113,000

Option b is correct ( $ 113,000 ).

Note: Rentro will not report loss on extinguishment of bond, as there is gain on sale of bond. So, " what will Rentro report as a loss on extinguishment " line in question is incorrect. As Rentro is earning gain.

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