9/20/2017 Mock Exam - Becker CPA Exam Review

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On January 1, Year 1, David Corp. issued 1000 of its $1,000 bonds at 94. David Corp. uses U.S. GAAP.
The bonds mature in 10 years but are callable at 102 any time after issuance. On January 1, Year 1,
David incurred bond issue costs of $50,000. On July 1, Year 8, David called all of the bonds and retired
them. Assuming that bond discount and issue costs were amortized using the straight-line method, what
amount of pretax loss would David report from this extinguishment of debt?

$47,500

$20,000

$85,000

$58,500

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Choice "1" is correct.

Bond face $ 1,000,000

Issued @ 94 $ 940,000

Issue cost (50,000)

Net carrying value (890,000)

110,000

10 years

Amortization per year 11,000

Jan Year 1 - July Year 8 7.5

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