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alternative methods - reporting early extinguishment of debt

Gains or losses from the early extinguishment of debt that is refunded can theoretically be accounted for in three ways:

1. Amortized over the life of old debt.

2. Amortized over the life of the new debt issue.

3. Recognized in the period of extinguishment.

Discuss the supporting arguments for each of the three theoretical methods of accounting for gains and losses from the early extinguishment of debt.

Solution Preview

Response is 264 words. You may get ideas from this and expand now that I've gotten you started.

What this question is about is when you pay off current debt by issuing new debt, presumably with better features so you are willing to take a hit on paying off the old debt.

1. Amortized over the life of old debt.

The gain or loss is due to the old debt and is not ...

Solution Summary

Response is 264 words in everyday language suitable for novice to intermediate.

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