# Intermediate Accounting

The 10% bonds payable of Klein Company had a net carrying amount of \$570,000 on December 31, 2006. The bonds, which had a face value of \$600,000, were issued at a discount to yield 12%. The amortization of the bond discount was recorded under the effective-interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2007, several years before their maturity, Klein retired the bonds at 102. The interest payment on July 1, 2007 was made as scheduled. What is the loss that Klein should record on the early retirement of the bonds on July 2, 2007? Ignore taxes

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1. \$37800

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2. Calculation of loss to be recorded on the early retirement of bond :-
= (600000 * 102 % - 570000) - 10 % of (600000 * 102 % - 570000).
= (612000 - 570000) - 10 % of (612000 - 570000).
= 42000 - 10 % of 42000.
= 42000 - 4200
= \$ 37,800.
Conclusion :- Loss to be recorded on early retirement of bond in the given question = \$ 37,800

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