On January 2 2006 Brueckner Corporation a small

company that #1224

On January 2, 2006, Brueckner Corporation, a small company that follows private enterprise
GAAP, issued $1.5 million of 10% bonds at 97 due on December 31, 2015. Legal and other
costs of $110,000 were incurred in connection with the issue. Brueckner Corporation has
adopted the 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 annually
each December 31. The $110,000 in 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 102
(i.e., at 102% of their face amount), and on January 2, 2011, the company called a face amount
of $850,000 of the bonds and retired them. Instructions (a) Ignoring income taxes, calculate the
amount of loss, if any, that the company needs to recognize as a result of retiring the $850,000
of bonds in 2011. Prepare the journal entry to record the retirement. (b) How would the amount
of the loss calculated in part (a) differ if the policy for Brueckner Corporation had been to carry
the bonds at fair value and thus expense the costs of issuing the bonds at January 2, 2006?
Assuming that Brueckner Corporation had followed this policy, prepare the journal entry to
record the retirement. (c) How would your answers to (a) and (b) change if Brueckner were to
follow IFRS?View Solution:
On January 2 2006 Brueckner Corporation a small company that

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