A material gain earned when retiring bonds before their maturity date is recognized by
A)amortizing it over the remaining life of the bond
B)making a prior period adjustment
C)reporting it as an extraordinary item in the year of retirement
D)reporting it as an ordinary item in the year of retirement

Question

Quizplus · Accepted Answer

When retiring bonds before their maturity date, any material gain earned should be reported as an ordinary item in the year of retirement. This gain represents a reduction in the cost of borrowing, so it is not an extraordinary item that is both infrequent and unusual in nature. Amortizing the gain over the remaining life of the bond would be inappropriate because the bond has been retired and is no longer outstanding. Making a prior period adjustment would only be necessary if there was an error in a previous financial statement.

A Material Gain Earned When Retiring Bonds Before Their Maturity