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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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When the issuer of bonds exercises the call provision to retire the bonds, the excess of the cash paid over the carrying amount of the bonds should be recognized separately as a(n):

  1. a. expense
  2. b. prior period adjustment
  3. c. loss from continuing operations
  4. d. loss from discontinued operations

To determine

Identify the option that should be recognized separately if excess of cash is paid over the carrying amount of the bonds, during the call provision to retire bonds.

Explanation

Call provision:

Call provision is a clause or condition on bonds that allows the issuer of debt to recall the bonds and redeem or retire those bonds before the maturity date at a pre-stated percentage of the face value as mentioned in the bond indenture.

Justification for the incorrect option a, b and d:

Expense, prior period adjustment and loss from discontinued operations are not recognized separately if excess of cash is paid over the carrying amount of the bonds, during the call provision to retire bonds. These are incorrect options...

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