INSTRUCTIONSYou are to follow the case instructions in the text as you complete your selected case. Items to include are outlined as follows: 500 words in length that addresses all of the criteria for the selected case. Your assignment must be in current APA format. You must support your assertions with at least two citations. In addition, you will provide a biblical application for the subject matter of the case. Acceptable sources include peer-reviewed journal articles, FASB Codification, the textbook, and the Bible. Note: Your assignment will be checked for originality via the Turnitin plagiarism tool.
Case 11-5 Early Extinguishment of Debt
Gains or losses from the early extinguishment of debt that is refunded can theoretically be accounted for in three ways:
- Amortized over the life of old debt.
- Amortized over the life the new debt issue.
- Recognized in the period of extinguishment.
a. Discuss the supporting arguments for each of the three theoretical methods of accounting for gains and losses from the early extinguishment of debt.
b. Which of the three methods would provide a balance sheet measure that reflects the present value of the future cash flows discounted at the interest rate that is commensurate with the risk associated with the new debt issue? Why?
c. Which of the three methods is generally accepted, and how should the appropriate amount of gain or loss be shown in a company’s financial statements?