Question

The December 31, 2016, balance sheet of ABC, LLP included 12% bonds with a face amount of $100 million. The bonds were issued in 2006 and had a remaining discount of $3,400,000 at December 31, 2016. On January 1, 2017, ABC called the bonds at a price of 102.

Prepare the journal entry by ABC to record the retirement of the bonds on January 1, 2017.

What is the difference between loss on early extinguishment of debt and loss on retirement of bonds? or do they mean the same thing/similar journal entry account name?

Answer 1

Debt means a sum of money due to be paid. It include both the short term and long term debts. Debt which is payable within 12 months period is short term and payable or due after 1 year is long term debt. Long term debts include notes payable, bonds payable, other long term liabilities.

Early extingushment of debt means the debt is paid before it is due or before the maturity. Early extinguishment can be for any debt including retirement of bonds.

When we say retirement of bonds payable, it is for bonds payable, but when we use term early extingushment of debt, it may be for bonds payable or other long term debt.

To record loss on early extinguishment of debt and loss on retirement of bonds, same account name is used to record the loss.