Question

Which of the following is not an accurate statement regarding the retirement of debt? Multiple Choice

A) When debt is retired before the maturity date, a loss occurs if the market rate of interest increased subsequent to the issue of the bond.
B) When debt is retired before the maturity date, a gain occurs if the market rate of interest increased subsequent to the issue of the bond.
C) The gain or loss on the extinguishment of debt is categorized on the income statement as part of continuing operations.
D) When debt is retired on the maturity date, the book value is always equal to the market value.

Answer 1

A)

Step-by-step explanation:

When debt is retired before the maturity date and the market interest rate increases a gain occurs because you paying less interest which lead to a lower debt. Once the debt matures the book value will always be equal to the market value because the market value is the total amount due with paying a fixed amount of installments with interest and the book value is the matured debt payed with interest. Interest on debt is an expense so you record it in the statement of profit and loss