When a Company Retires Its Outstanding Bonds Prior to Their

question 101

Multiple Choice

When a company retires its outstanding bonds prior to their maturity by purchasing them in the secondary market:

• A)a loss results when the purchase price is less than the carrying value of the bonds
• B)any unamortized discount or premium is immediately charged to interest expense
• C)the Bonds Payable account is debited for an amount equal to the maturity value of the bonds
• D)a gain results when the carrying value of the bonds is less than the purchase price
• Of the bonds

---

Definitions:

Novation

A legal process by which an existing contract is replaced by a new contract, with the consent of all parties involved, often involving a change of parties or terms.

Statutory Assignment

The transfer of rights or interests in a particular matter as established by statute or legislative action.

Equitable Assignment

A method by which contractual rights are transferred from one party to another, in a manner recognized by equity or fairness, rather than strictly by the letter of the law.

Rectification

The judicial procedure for rectifying an error in a document to accurately represent the real intentions of the parties concerned.