Prepare the journal entry to record the retirement

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Question - On January 2, 2015, Culver Corporation, a small company that follows ASPE, issued $2.6 million of 7% bonds at 98 due on December 31, 2024. Legal and other costs of $260,000 were incurred in connection with the issue. Culver Corporation has a policy of capitalizing and amortizing the legal and other costs incurred by including them with the bond recorded at the date of issuance. Interest on the bonds is payable each December 31. The $260,000 of issuance costs are being deferred and amortized on a straight-line basis over the 10-year term of the bonds. The discount on the bonds is also being amortized on a straight-line basis over the 10 years. (The straight-line method is not materially different in its effect compared with the effective interest method.)

The bonds are callable at 105 (that is, at 105% of their face amount), and on January 2, 2020, the company called a face amount of $1,400,000 of the bonds and retired them.

Ignoring income taxes, calculate the amount of loss, if any, that the company needs to recognize as a result of retiring $1,400,000 of bonds in 2020. Prepare the journal entry to record the retirement.

Reference no: EM132607922

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