When bonds are retired prior to their maturity date:
A)GAAP has been violated.
B)The issuing company probably will report an ordinary gain or loss.
C)The issuing company probably will report an extraordinary gain or loss.
D)The issuing company will report a non-operating gain or loss.

Question

Quizplus · Accepted Answer

When bonds are retired prior to their maturity date, the issuing company will report an ordinary gain or loss on the income statement. This gain or loss represents the difference between the carrying amount of the bonds (the bond's face value minus any unamortized discount or plus any unamortized premium) and the amount paid to retire them. This gain or loss is reported as a non-operating item on the income statement because it is not related to the company's primary business operations. GAAP is not violated by retiring bonds prior to their maturity date if the terms of the bond agreement allow for early retirement.

When Bonds Are Retired Prior to Their Maturity Date