Sigma Company Issued $12 Million in 10 Percent Bonds 6

question 26

Multiple Choice

Sigma Company issued $12 million in 10 percent bonds 6 years ago currently having a carrying amount of $10.7 million. The bond agreement allows for early extinguishment by Sigma Company beginning in the current year. Sigma's investment bank has arranged for the company to issue $10 million of new 8 percent bonds at face value to a group of investors. The proceeds will be used to extinguish the 10 percent bonds. The banking, legal, and accounting costs to execute the transaction total $200,000. The journal entry to record the debt extinguishment will include:

• A) a debit to Bonds Payable-8% for $10,000,000.
• B) a credit to Gain on Extinguishment of 10% Bonds for $500,000.
• C) a credit to Bonds Payable-10% for $12,000,000.
• D) a debit to Loss on Extinguishment of 10% Bonds for of $200,000.

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Definitions:

Time-Phased

refers to planning or scheduling that outlines specific tasks or activities to be completed in distinct time frames, ensuring that resources are allocated and objectives are met systematically over time.

Distribution Network

The interconnected group of storage facilities and transportation systems that move goods from producers to consumers.

Closed-Loop MRP

A Materials Requirement Planning system that provides feedback on inventory levels, production, and purchase orders, enabling continuous updates and adjustments.

Dependent Demand

The need for materials or components directly tied to the demand for final products, where changes in the product demand impact the demand for materials.