A bond liability can be extinguished so that the issuing company is legally released from being the primary obligor of the liability. This process is referred to as
A) early retirement.
B) bond guarantee.
C) defeasance.
D) debt restructuring.

Question

Quizplus · Accepted Answer

Defeasance is a process where a bond issuer is released from the obligations of the bonds by setting aside enough assets in a trust to cover the principal and interest payments. This effectively extinguishes the bond liability, as the issuer's obligation is considered fulfilled through the creation of this separate entity holding sufficient funds to meet the bond payments.

A Bond Liability Can Be Extinguished So That the Issuing