On December 31, 20X0, a Zurich real estate holding company issued CHF10 million of 10-year, 8% debentures.

Question:

On December 31, 20X0, a Zurich real estate holding company issued CHF10 million of 10-year, 8% debentures. The market interest rate at issuance was 8%. Suppose that on December 31, 20X1 (after all interest payments had been recorded for 20X1), the company purchased all the debentures for CHF9 million. The debentures had been held by a large insurance company throughout their life. (CHF represents Swiss francs.)

Show all amounts in thousands of Swiss francs.

1. Compute the gain or loss on early extinguishment.

2. By using the balance sheet equation, present an analysis of the December 31, 20X1, transaction on the holding company’s books.

3. Show the appropriate journal entry.

Debentures
Debenture DefinitionDebentures are corporate loan instruments secured against the promise by the issuer to pay interest and principal. The holder of the debenture is promised to be paid a periodic interest and principal at the term. Companies who... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...