DO NOT SEND ME THE ATTACHED FILE!! The answer has to be answered free of already answered questions. I will flag plagiarized answers.

A company can account for gains or losses from early extinguishment of debt in three ways:

1.Amortize over remaining life of old debt

2.Amortize over the life of the new debt issue, or

3.Recognize in the period of extinguishment.

Discuss the supporting arguments for each of the three methods of accounting for gains and losses from the early extinguishment of debt. Which of the three methods makes practical sense? State reasons for and support your rationale. Is your preferable method one of the generally accepted methods? If not, why is your preferred method not generally accepted.

Amortization over life of old issue. Some accountants believe that the difference on refunding should be amortized over the remaining original life of the extinguished is sue. In effect. the difference is regarded as an adjustment of the cash cost of borrowing that arises from obtaining another arrangement for the unexpired term of the old agreement. Therefore. the cost of money over the remaining period of the original issue is affected by the difference that results upon extinguishment of the original contract. Early extinguishment occurs for various reasons. but usually because it is frnancially advantageous to the issuer. for example. if the periodic cash interest outlay can be reduced for future periods. Accordingly. under this view the difference should be spread over the unexpired term of the original issue to obtain the proper periodic cost of borrowed money. If the maturity date of the new issue precedes the maturity date of the original issue. a portion of the difference is amortized over the life of the new debt and the balance of the difference is recognized currently in income as a loss or gain. Amortization over life of new issue. Some accountants believe that the difference on refunding should be amortized over the life of the new issue if refunding occurs because of lower current interest rates or anticipated higher interest rates in the future. Under this view. the principal motivation for refunding is to establish a more favorable interest rate over the term of the new issue. Therefore. the expected benets to be obtained over the life of the new issue justify amortization of the difference over the life of the new issue. Recognize in the period of extinguishment Some accountants believe a difference on refunding is similar to the difference on other early extinguishments and should be recognized currently in income in the period of the extinguishment. This view holds that the value of the old debt has changed over time and that paying the call price or current market value is the most favorable way to extinguish the debt. The change in the market value of the debt is caused by a change in the market rate of interest. but the change has not been reected in the accounts. Therefore. the entire difference is recorded when the specic contract is terminated because it relates to the past periods when the contract was in effect. If the accountant had foreseen future events perfectly at the time of issuance. he would have based the accounting on the assumption that the maturity value of the debt would equal the reacquisition price. Thus. no difference upon early extinguishment would occur because previous periods would have borne the proper interest expense