On January 1, 2013, Goll Corp. issued 3,000 of its 10%, $1,000 bonds for $3,120,000. These bonds were set to mature on January 1, 2023, but could be called at 101 at any time after December 31, 2016. Interest payments were made semiannually on July 1 and January 1. On July 1, 2018, Goll called and retired all the bonds. The bond premium was amortized using the straight-line method. Before income taxes, the gain or loss Goll realized in 2018 from this early debt extinguishment was: - $30,000 loss - $24,000 gain - $90,000 gain - $36,000 gain

To accurately compute Goll Corp’s gain or loss from the early extinguishment of the bonds on July 1, 2018, we must perform several steps:

1. Determine the carrying value of the bonds on the date of retirement. 2. Determine the cash paid to retire the bonds. 3. Calculate the difference between the carrying value and the cash paid.

Step 1: Considering the bonds were issued at a premium (since they were sold for $3,120,000 instead of their face value of $3,000,000), the total premium is the difference between the selling price and the face value:

Premium = Selling Price - Face Value Premium = $3,120,000 - $3,000,000 Premium = $120,000

This premium is amortized over the life of the bond (from January 1, 2013, to January 1, 2023, i.e., 10 years). Since the bonds were retired early, on July 1, 2018, we need to calculate the amount of premium amortized up to that date.

Bond premium amortized annually = $120,000 / 10 years = $12,000 per year As interest is paid semiannually and premium is also amortized semiannually, we find the semiannual amortization amount: Bond premium amortized semiannually = $12,000 / 2 = $6,000 every six months

The bonds were outstanding for 5.5 years (from January 1, 2013, to July 1, 2018). Therefore, the total amortized premium would be: Total amortized premium = $6,000 per semiannual period 11 periods (5.5 years) Total amortized premium = $66,000

Now we can compute the carrying value of the bonds: Carrying value = Face value of the bonds + Unamortized premium Carrying value = $3,000,000 + ($120,000 - $66,000) Carrying value = $3,000,000 + $54,000 Carrying value = $3,054,000

Step 2: Since the bonds are callable at 101, we calculate the cash paid to retire them:

Cash paid to retire the bonds = Face value of the bonds * 101% Cash paid to retire the bonds = $3,000,000 * 1.01 Cash paid to retire the bonds = $3,030,000

Step 3: Lastly, we compare the carrying value of the bonds to the cash paid to find the gain or loss on retirement:

Loss on bond retirement = Carrying value - Cash paid Loss on bond retirement = $3,054,000 - $3,030,000 Loss on bond retirement = $24,000

Therefore, before income taxes, Goll's loss in 2018 on the early extinguishment of debt was $24,000.