Use the Following Information to Answer Question

question 13

Multiple Choice

Use the following information to answer question
Due to changes in the prevailing interest rates, Washington County has decided to issue new 5% bonds and place the proceeds with a trustee in a manner structured to satisfy all the GASB requirements for an in-substance defeasance of an existing 6.5% bond issue.The 6.5% bonds were originally issued to fund highway projects and the debt is reported in the Schedule of Long-term Obligations and in the governmental activities column of the government-wide financial statements.The old 6.5% bonds are still actively traded in the bond market and will be until their maturity.The new 5% bonds will be sold to an institutional buyer who may also sell them in the bond market.
-The City of Williamsburg decided to defease old 6% bonds carried in its Electric Enterprise Fund with new 4.5% bonds.As a result of the defeasance, the City incurred an accounting loss.This loss should be recognized

• A)As an adjustment to retained earnings since it is applicable to prior periods.
• B)In the year of the` defeasance.
• C)Over the remaining life of the old bonds or the new bonds, whichever is shorter.
• D)It should not be recognized.

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