Extinguishment of Bonds Prior to MaturityOn December 1, 2017, Cone Company issued its 9%, $510,000 face value bonds for $590,000, plus accrued interest. Interest is payable on November1 and May 1. On December 31, 2019, the book value of the bonds, inclusive of the unamortized premium, was $540,000. On July 1, 2020, Conereacquired the bonds at 97 plus accrued interest. Cone appropriately uses the straight-line method for the amortization because the results do notmaterially differ from those of the effective interest method.Required:Prepare a schedule to compute the gain or loss on this redemption of debt. Enter all values as positive values.Cone CompanyComputation of Gain on Extinguishment of DebtJuly 1, 2020хBook value of bonds on December 1, 2017хBook value of bonds on December 31, 2019Amortization for 25 monthsMonthly amortizationBook value of bonds on December 31, 2019Amortization for January 1 to July 1, 2020Book value of bonds on July 1, 2020Cost of reacquisitionGain on bond redemption

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Asked Feb 7, 2020
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Extinguishment of Bonds Prior to Maturity
On December 1, 2017, Cone Company issued its 9%, $510,000 face value bonds for $590,000, plus accrued interest. Interest is payable on November
1 and May 1. On December 31, 2019, the book value of the bonds, inclusive of the unamortized premium, was $540,000. On July 1, 2020, Cone
reacquired the bonds at 97 plus accrued interest. Cone appropriately uses the straight-line method for the amortization because the results do not
materially differ from those of the effective interest method.
Required:
Prepare a schedule to compute the gain or loss on this redemption of debt. Enter all values as positive values.
Cone Company
Computation of Gain on Extinguishment of Debt
July 1, 2020
х
Book value of bonds on December 1, 2017
х
Book value of bonds on December 31, 2019
Amortization for 25 months
Monthly amortization
Book value of bonds on December 31, 2019
Amortization for January 1 to July 1, 2020
Book value of bonds on July 1, 2020
Cost of reacquisition
Gain on bond redemption
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Extinguishment of Bonds Prior to Maturity On December 1, 2017, Cone Company issued its 9%, $510,000 face value bonds for $590,000, plus accrued interest. Interest is payable on November 1 and May 1. On December 31, 2019, the book value of the bonds, inclusive of the unamortized premium, was $540,000. On July 1, 2020, Cone reacquired the bonds at 97 plus accrued interest. Cone appropriately uses the straight-line method for the amortization because the results do not materially differ from those of the effective interest method. Required: Prepare a schedule to compute the gain or loss on this redemption of debt. Enter all values as positive values. Cone Company Computation of Gain on Extinguishment of Debt July 1, 2020 х Book value of bonds on December 1, 2017 х Book value of bonds on December 31, 2019 Amortization for 25 months Monthly amortization Book value of bonds on December 31, 2019 Amortization for January 1 to July 1, 2020 Book value of bonds on July 1, 2020 Cost of reacquisition Gain on bond redemption

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Expert Answer

Step 1

Bond is an instrument which represent the amount of loan raised by the borrower from the lender. It has a fixed interest. The bond redemption includes the repayment of interest & loan amount raised by the borrower.

Step 2

The schedule to compute gain or loss on the redemption of debt is prepared as follows:

Accounting homework question answer, step 2, image 1

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