B is corrent. The loss on early extinguishment of debt is the difference between cash paid and the carrying amount. The bonds payable ($1,000,000) were issued at a discount of $40,000 on 7/1/Y1. The bonds are called at 101 6 years later on 7/1/Y7. Since the bonds were due in 10 years, 6/10 of the discount (6/10 × $40,000, or $24,000) would have been amortized by 7/1/Y7. Therefore, the balance in the bond discount account is $16,000 ($40,000 — $24,000), and the carrying amount of the debt is $984,000 ($1,000,000 — $16,000). The loss on the retirement is the difference between the $1,010,000 cash paid ($1,000,000 × 1.01) and the $984,000 carrying amount, or $26,000.
A is incorrect. The loss on early extinguishment of debt is the difference between cash paid and the carrying amount. The bonds payable ($1,000,000) were issued at a discount of $40,000 on 7/1/Y1. The bonds are called at 101 6 years later on 7/1/Y7. Since the bonds were due in 10 years, 6/10 of the discount (6/10 × $40,000, or $24,000) would have been amortized by 7/1/Y7. Therefore, the balance in the bond discount account is $16,000 ($40,000 — $24,000), and the carrying amount of the debt is $984,000 ($1,000,000 — $16,000). The loss on the retirement is the difference between the $1,010,000 cash paid ($1,000,000 × 1.01) and the $984,000 carrying amount, or $26,000.
A is incorrect. The loss on early extinguishment of debt is the difference between cash paid and the carrying amount. The bonds payable ($1,000,000) were issued at a discount of $40,000 on 7/1/Y1. The bonds are called at 101 6 years later on 7/1/Y7. Since the bonds were due in 10 years, 6/10 of the discount (6/10 × $40,000, or $24,000) would have been amortized by 7/1/Y7. Therefore, the balance in the bond discount account is $16,000 ($40,000 — $24,000), and the carrying amount of the debt is $984,000 ($1,000,000 — $16,000). The loss on the retirement is the difference between the $1,010,000 cash paid ($1,000,000 × 1.01) and the $984,000 carrying amount, or $26,000.
D is incorrect. The loss on early extinguishment of debt is the difference between cash paid and the carrying amount. The bonds payable ($1,000,000) were issued at a discount of $40,000 on 7/1/Y1. The bonds are called at 101 6 years later on 7/1/Y7. Since the bonds were due in 10 years, 6/10 of the discount (6/10 × $40,000, or $24,000) would have been amortized by 7/1/Y7. Therefore, the balance in the bond discount account is $16,000 ($40,000 — $24,000), and the carrying amount of the debt is $984,000 ($1,000,000 — $16,000). The loss on the retirement is the difference between the $1,010,000 cash paid ($1,000,000 × 1.01) and the $984,000 carrying amount, or $26,000.
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