At December 31, 2026, the following balances existed for MICPA Corporation: Bonds Payable (6%) $600,000 Discount on Bonds Payable 50,000 The bonds mature on 12/31/28. Straight-line amortization is used. If 60% of the bonds are retired at 103 on January 1, 2028, what is the gain or loss on early extinguishment

$25,800

Explanation:

The bonds would mature at the end of the year 2028, which means in 2 years, as result, annual discount amortization is  computed thus:

annual discount amortization=$50,000/2=$25,000

On January 1,2028, the balance in discount amortization is $25,000

Proceeds for 60% redemption=$600,000*60%*103%=$370,800

60% of bonds payable=$600,000*60%=$360,000

60% of unamortized discount=60%*$25,000=$15,000

In effecting the  journal entries, bonds payable is debited with $360,000 while cash and discount on bonds payable are credited with $370,800 and $15,000 respectively.

Total credits=$370,800+$15,000=$385,800  

total debit=$360,000

loss on early extinguishment is $25,800($385,800-$360,000)

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explanation: