1. On December 31, 20x1, CONFLAGRATION LARGE FIRE Co. agreed to the following modification of its existing liability:

• The principal remained unchanged at 20,000,000.
• The repayment of the accrued interest of 600,000 was waived.
• The maturity date was extended from December 31, 20x2 to December 31, 20x4.
• The stated rate was reduced from 12% to 10%.

Interest is payable annually at each year-end. The original effective interest rate is 12%. CONFLAGRATION Co. incurred costs of 200,000 which were directly attributable to the restructuring. The costs were paid to third parties. How much is the gain (loss) on the extinguishment of the debt?

a. (1,360,732) c. (200,000)

b. 1,360,732 d. 0