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15 June, 06:04

On january 1, year 1, fox corp. issued 1,000 of its 10%, $1,000 bonds for $1,040,000. these bonds were to mature on january 1, year 11, but were callable at 101 any time after december 31, year 4. interest was payable semiannually on july 1 and january 1. on july 1, year 6, fox called all of the bonds and retired them. bond premium was amortized on a straight-line basis. before income taxes, fox's gain or loss in year 6 on this early extinguishment of debt was:

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  1. 15 June, 09:21
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    Amount of Premium to be amortised per interest payment=Total Premium/No of times interest will be paid over life of the bond

    =40000/20

    =$2000

    No of Interest payments made upto 1st July Year 6=11 times

    Premium Amortised upto 1st July=Amount of Premium to be amortised per interest payment*No of payments made upto 1st July, Year6

    =2000*11

    =$22000

    Carrying amount of Bond as on 1sy July, Year 6 = Face Value of Bond-Premium Amortised upto 1st July, Year 6

    =1040000-22000

    =$1018000

    Gain / (Loss) on Amortisation=Amount Paid-Carrying Value of Bond

    =1010000-1018000

    =$8000
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