At the beginning of the current year, two bond issues (Simmons Industries 7% 20 year bonds and Hunter Corporation 8% 10-year bonds) were outstanding. During the year, the Simmons Industries bonds were redeemed and a significant loss on the redemption of bonds was reported as an extraordinary item on the income statement. At the end of the year, the Hunter Corporation bonds were reported as a noncurrent liability. The maturity date on the Hunter Corporation bonds was early in the following year.
Identify the flaws in the reporting practices related to the two bond issues.
Answer:
1. The significant loss on redemption of the Simmons Industries bonds should be reported in the Other Income and Expense section of the income statement, rather than as an extraordinary loss.
2. The Hunter Corporation bonds outstanding at the end of the current year should be reported as a current liability on the balance sheet because they mature within one year.