Basil Ltd. is a public corporation and issues $500,000 of 8% bonds on 1 January 2015, incorporating the following relevant data. Basil Ltd. has a December 31 fiscal year-end.

Bond date1 January 2014

Maturity date31 December 2018

Interest dates30 June; 31 December

Yield rate4%

On 1 March 2017 Basil Ltd. purchased 20% of the bonds in the open market for 98 plus accrued interest.

REQUIRED:

a)List the three essential characteristics of a "liability" under accounting standards and indicate at which date the bond payable must be recognized as a liability of Basil Ltd.

b)Prepare the journal entry to record the bond issue.

c)Prepare the journal entries required in order to update the portion of the bond issue retired, and to record the bond retirement.

d)Assume Basil Ltd. was to repay the full bond at maturity, but nevertheless wished to currently extinguish the entire bond liability through a defeasance transaction. Discuss in detail the requirements of such a disclosure.