Question

On January 2, 2015, Banno Corporation issued $1,500,000 of 10% bonds at 97 due December 31, 2024. 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 101 (i.e., at 101% of face amount), and on January 2, 2020, Banno called $900,000 face amount of the bonds and redeemed them.Ignoring income taxes, compute the amount of loss, if any, to be recognized by Banno as a result of retiring the $900,000 of bonds in 2020. (Round answer to 0 decimal places, e.g. 38,548.)Loss on redemption

Answer 1

$22,500

Step-by-step explanation:

Computation of the amount of loss

Loss on redemption of bonds=[($900,000*101%)+(100%-97%*$900,000/10 years*5years)]-$900,000

Loss on redemption of bonds=[($909,000)+(3%*$900,000/10 years*5 years)]-$900,000

Loss on redemption of bonds=($909,000+$13,500)-$900,000

Loss on redemption of bonds=$922,500-$900,000

Loss on redemption of bonds=$22,500

Note that 1/2/2016 - 1/2/2020 will give us 5 years which means that there are 5 years left making the balance in the discount Account to be $13,500.

Therefore the amount of loss will be $22,500