A corporation called an outstanding bond obligation four years before maturity. At that time there was an unamortized discount of $300,000. To extinguish this debt, the company had to pay a call premium of $100,000. Ignoring income tax considerations, how should these amounts be treated for accounting purposes?
A) Amortize $400,000 over four years.
B) Charge $400,000 to a loss in the year of extinguishment.
C) Charge $100,000 to a loss in the year of extinguishment and amortize $300,000 over four years.
D) Either amortize $400,000 over four years or charge $400,000 to a loss immediately, whichever management selects.

Question

Quizplus · Accepted Answer

$300,000 + $100,000 = $400,000

A Corporation Called an Outstanding Bond Obligation Four Years Before