Q

Question 1

Many companies and agencies extinguish (or refund) long-term debt prior to maturity as a method of managing financial risk. The gain (retirement price less carrying amount of the old debt) will be included as part of continuing operations.

Question 2

If a bond is issued above par and redeemed below par, this will result in a gain, which the issuer will book in income from continuing operations. The issuer is effectively paying less than par to remove a liability that is on the books at a price above par.

Question 5

Any unamortized bond issuance costs will be deducted from the carrying value of the bond at the time the bond issue is redeemed. Because the loss is equal to the reacquisition price – the carrying value, the lower the carrying value, the greater the loss.

Question 6

Paying off the bond at maturity (at par value) will extinguish the liability.

Answer 6

Paying off a bond prior to maturity will extinguish the liability, with a gain or loss likely booked at redemption.

Question 7

A legal release by judicial decree will extinguish the liability.