[SchruteBeet]

A 15-year bond was issued in Year 1 at a discount. During Year 11, a 10-year bond was issued at face amount with the proceeds used to retire the 15-year bond at its face amount. The net effect of the Year 11 bond transactions was to increase long-term liabilities by the excess of the 10-year bond’s face amount over the 15-year bond’s:

A. face amount.

B. carrying amount.

C. face amount less the deferred loss on bond retirement.

D. carrying amount less the deferred loss on bond retirement.

Answer: B. The new debt would be carried at $100,000, the old debt would be carried at below $100,000 (less the remaining unamortized discount), and the total long-term liabilities would be increased by the discount left, the amount the new 10-year debt carrying value is higher than the carrying value of the 15-year debt.

Can someone please explain why the old bond is still a long term liability when it has been retired at a loss?

[SchruteBeet]

Anyone?

[Anonymous]

This question is also throwing me off. Looks like the 15-year-Bond means was not really retired if it’s still outstanding in the balance sheet, was it just ‘’refinanced’’?

[mskcle]

I think what they are trying to say is the equation to calculate the loss which is Reacquisition price – (Carrying value – unamortized discount). The new bond would replace the old bond with a loss being recorded based on the unamortized discount.

Dr: Bond payable (old)
Dr: Loss on extinguishment
Cr: Discount on bond payable
Cr: Bond payable (new)

[Author]

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