[nib]

Hello friends ,

I was wondering as per cpa exam , the bond issue cost rule has changed .As per the new rule , Is this answer correct ?

mcq :

A company issues $1,500,000 of par bonds at 98 on January 1, year 1, with a maturity date of December 31, year 30. Bond issue costs are $90,000, and the stated interest rate of the bonds is 6%. Interest is paid semiannually on January 1 and July 1. Ten years after the issue date, the entire issue was called at 102 and canceled. The company uses the straight-line method of amortization for bond discounts and issue costs, and the result of this method is not materially different from the effective interest method. The company should classify what amount as the loss on extinguishment of debt at the time the bonds are called?

A. $30,000

B. $50,000

C. $90,000

D. $110,000

answer = 110000

When a bond is retired, the principal, unamortized pre­mium or discount, and any bond issue costs that were incurred and recorded as an asset (i.e., as a deferred charge) must be written off, reducing any gain that may be recognized on the retirement. The journal entry to write off the above bond is as follows:

Bonds Payable (face) 1,500,000

Loss on Bond Extinguishment (plug) 110,000

Bond Discount ($30,000 × 20/30) 20,000

Bond Issue Costs ($90,000 × 20/30) 60,000

Cash ($1,500,000 × 1.02) 1,530,000