The City of Williamsburg Decided to Defease Old 6 Percent

question 43

Multiple Choice

The City of Williamsburg decided to defease old 6 percent bonds carried in its Electric Enterprise Fund with new 4.5 percent bonds. As a result of the defeasance, the city incurred an accounting loss. The 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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