Question

QUESTION 2 "A corporation called an outstanding bond obligation four years before maturity. At that time there was an unamortized discount of $1420000. To extinguish this debt, the company had to pay a call premium of $530000. Ignoring income tax considerations, how should these amounts be treated for accounting purposes?" "Either amortize $890000 over four years or charge $890000 to a loss immediately, whichever management selects." Amortize $1950000 over four years Charge 51950000 to a loss in the year of extinguishment Charge $530000 to a loss in the year of extinguishment and amortize 51420000 over four years.

Answer 1

a, Either amortize $890,000 over four years or charge $890,000 to a loss immediately, whichever management selects.

As the corporation called an outstanding bond obligation before maturity and there was an unamortized discount of $1,420,000 and the company had to pay a call premium of $530,000. So the net amount $890,000 ($1,420,000 - $530,000) to be amortized for this and the management can amortize this amount over four years or charge to loss immediately.