Boling,Inc.,just made the interest payment on its $4,000,000 of outstanding bonds.The bonds are callable at 101 5/8 and the unamortized premium is currently $167,400.The entry to retire half of the bonds would include a
A)debit to premium on bonds payable for $167,400.
B)credit to cash for $2,000,000.
C)credit to gain on early extinguishment of debt for $51,200.
D)debit to loss on early extinguishment of debt for $52,500.
E)debit to loss on early extinguishments of debt for $167,400.

Question

Quizplus · Accepted Answer

The gain on early extinguishment of debt is calculated as the difference between the carrying value of the bonds and the call price. The carrying value of the bonds is $4,000,000 + $167,400 = $4,167,400. The call price is $4,000,000 x 101 5/8 = $4,051,200. Therefore, the gain on early extinguishment of debt is $4,167,400 - $4,051,200 = $51,200.