Final answer:
Doty Co. would recognize a gross loss of $140,000 from the bond redemption transaction and $70,000 in unamortized issue costs, totaling a $210,000 loss, which does not match any of the provided answer choices, indicating potential error in the question or the need for additional information.
Step-by-step explanation:
The student's question asks for the amount of loss Doty Co. should recognize on the redemption of its bonds. Initially issued at 98 and redeemed at 102, Doty Co. paid $3,500,000 in par value and an additional 2% premium on redemption. Subtracting the original discount of 2% from the premium at redemption gives us a net loss of $140,000 ($70,000 loss on issuance at 98 and $210,000 loss on redemption at 102). In addition, Doty incurred issue costs of $210,000, which are typically treated as a reduction in the carrying amount of the bond and amortized over the life of the bonds. However, since the bonds are being redeemed before the maturity date, any unamortized bond issue costs would be recognized as a loss at redemption. To find the total loss, combine the loss due to the redemption premium with the unamortized portion of the issue costs. Suppose the issue costs are evenly amortized over the 15-year period; by the time of redemption at the beginning of year 13, two-thirds of the costs will have been amortized (12 years out of 15), leaving one-third, or $70,000, unamortized. When added to the net loss of $140,000 from the bond transaction itself, the total loss comes to $210,000. The closest answer to this calculation provided in the options is $210,000, but that's not on the list. Therefore, it is likely that the question might contain an error, or additional information is needed to match one of the provided answers.