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A gain or loss on early extinguishment of debt should be recorded for the difference between the reacquisition price and the book value of the debt. Convertible bonds are accounted for as straight debt, but the value of the equity feature is recorded separately for bonds issued with detachable warrants.Knowledge Check $01$

Touch$,$ Incorporated issued $9\%,$ $$1,300,000$ bonds for $$1,600,000.$ Touch$$ reacquired these bonds for $$1,365,000$ when their book value was $$1,436,500.$ What was the gain or loss on the early extinguishment of this debt?

Multiple Choice

Loss of $$65,000$

Gain of $$71,500$

Loss of $$71,500$

Incorrect

Gain of $$163,500$