$680,000 Loss or $280,000 gain??

CFA Level I
#21

As I remember the bond in question was sold at par so no disc or premium calcs. Sold for 100, bought back for 104 = -4

#22

I chose 400 as well. You post a loss on retirement of debt at a premium and AFAIK it is not netted against the benefit of new issuance at lower coupon.

#23

I forgot what I chose as my answer, but dont think I picked the right answer! I think I went with a loss

#24

SirViper Wrote: ------------------------------------------------------- > I chose $400k. When they sold the bond, the > liability was still the same on the balance sheet > and they redeemed it for $400k more. Has nothing > to do with the second bond and nothing to do with > the coupon (that shows up on the I/S in a > different transaction). you got it right. it was a economic gain but a accounting loss. a liability settled for more than its book value.

#25

i picked 280 as well. and it wasnt a guess. I remember doing some calculation

#26

.

#27

but didn’t the question ask about economic gain/loss? I went with 400k loss since the company retired 100m liability for 104m. But now when i think back, i’m not sure if they asked for accounting or economic effect.