A Bond with a $750,000 Maturity Value Is Immediately Retired

question 11

Multiple Choice

A bond with a $750,000 maturity value is immediately retired for $745,000 plus accrued interest.The discount on bonds payable (bond discount) at the retirement date is $25,500.Which of the following statements is correct?

• A)The gain on the debt extinguishment is $5,000.
• B)The loss on the debt extinguishment is $20,500.
• C)The gain on the debt extinguishment is $30,500.
• D)The gain or loss on the debt extinguishment can't be determined without knowing the dollar amount of the accrued interest.

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Definitions:

Economic Decisions

The choices made by individuals, businesses, governments, and other groups that affect the allocation of resources and the distribution of goods and services.

Excess Burdens

The economic inefficiencies that result from implementing a tax, often causing changes in consumption and production behaviors that lead to a loss in social welfare.

Nonneutral Taxes

Taxes that affect economic choices, potentially leading to inefficiencies or changes in market behavior, unlike neutral taxes which do not alter decision-making.

Externalities

Effects of a production or consumption activity on other parties not directly involved in the transaction, which may be either positive or negative.