Asked by Duncan Jackman on May 25, 2024
Verified
A material gain or loss from debt refunding should be
A) recognized over the remaining life of the old issue as ordinary income or loss
B) recognized in the current period as extraordinary income or loss
C) recognized over the life of the new bond issue as extraordinary income or loss
D) recognized in the current period as ordinary income or loss
Debt Refunding
The process of replacing an existing debt obligation with a new one, often with more favorable terms.
Ordinary Income
Earnings derived from standard business operations and not classified as capital gains or dividend income.
Extraordinary Income
Uncommon and infrequent gains not related to the normal operations of a business.
- Learn the accounting methods for the pre-maturity retirement of bonds and the documentation of notable gains or losses.
Verified Answer
CW
Chase WilliamsMay 27, 2024
Final Answer :
D
Explanation :
Material gains or losses from debt refunding should be recognized in the current period as ordinary income or loss. This is in accordance with the GAAP principle of matching expenses and revenues with the period in which they were incurred or earned. Extraordinary items are events and transactions that are unusual in nature and infrequent in occurrence, and debt refunding would not typically fit this criteria.
Learning Objectives
- Learn the accounting methods for the pre-maturity retirement of bonds and the documentation of notable gains or losses.