A Gain Is Earned When Retiring Bonds Before Their Maturity

question 147

Multiple Choice

A gain is earned when retiring bonds before their maturity date is recognized by

• A) amortizing it over the remaining life of the bond.
• B) making a prior period adjustment.
• C) reporting it as an extraordinary item in the year of retirement.
• D) reporting it as an ordinary item in the year of retirement.

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Definitions:

Fixed Costs

Expenses that do not change with the level of production or sales over a short period, such as rent, salaries, and insurance.

Book Value

The net value of an asset or company calculated as total assets minus intangible assets and liabilities.

Variable Costs

Expenses that change in proportion to the production or sales quantities.

Operating Loss

A situation where a company's operating expenses exceed its gross profits or revenues, indicating a loss in its core business activities.