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Security Solutions Corp has an outstanding bond obligation on their balance sheet with a carrying value of $275,000. The bond was issued 5 years ago, and has since lost significant value due to increasing interest rates. The company intends to re-purchase the bond for $250,000. Which of the following statements accurately portrays the transaction that will be recorded to demonstrate the redemption?
- Under GAAP, the company will recognize $25,000 in income but will need to
write down the costs of issuing the debt as a separate transaction. - Under GAAP, the company will recognize $25,000 in income and will not need
to make an adjustment for issuance costs as they are already capitalized
within the book value of the bond. - Under IFRS, the company will recognize $25,000 in income and will need to
write down the costs of issuing the debt as a separate transaction.
- Under GAAP, the company will recognize $25,000 in income but will need to
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Yes A is correct.
Under GAAP, a company will capitalize the issuance costs of debt separately from the bond itself, whereas IFRS will include it as a part of the security’s book value. As such, Security Solutions Corp will need to write-down the issuing costs separately under GAAP but does not need to do so under IFRS.
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