A debt-for-debt swap of debts with equal maturity values that occurs when the market rate of interest is higher than the stated rate of the old debt will give rise to a gain on debt extinguishments.

Question

Quizplus · Accepted Answer

When the market rate of interest is higher than the stated rate of the old debt, the old debt can be swapped for new debt that has a lower stated rate of interest but a lower market value. This difference in market value represents a gain on debt extinguishments.

A Debt-For-Debt Swap of Debts with Equal Maturity Values That