Bond Retirement and Extinguishment
Removing Bonds from the Books
Companies may retire bonds before or at maturity. Any difference between the reacquisition price and the bond's carrying amount is recognized as a gain or loss on extinguishment.
Gain (Loss) = Carrying Amount − Reacquisition Price
- Remove bond liability.
- Remove remaining premium or discount.
- Recognize gain or loss.
- Record cash paid.
Summary
Early retirement of debt requires comparing the carrying amount with the amount paid to extinguish the obligation.