Sun company, an oil refining concern, purchased all of its outstanding 8 5 percent (stated rate) debentures as part of a restructuring plan The balance sheet value of each outstanding debenture at the time of the repurchase was $875, and the company paid $957 50 for each $1,000 face value bond Requ...

a A debenture is an unsecured bond That is there is no collateral supporting the bond Thus should th ...

Sun company, an oil-refining concern, purchased all of its outstanding 8.5 percent (stated rate) debentures as part

Question:

Sun company, an oil-refining concern, purchased all of its outstanding 8.5 percent (stated rate) as part of a restructuring plan. The value of each outstanding debenture at the time of the repurchase was $875, and the company paid $957.50 for each $1,000 bond.
Required:
(a) What is debenture? Would such bonds tend to be issued at higher or lower prices than secured bonds? Why?
(b) Briefly discuss why a company would repurchased its outstanding debt.
(c) Explain how this repurchased would affect (increase, decrease, or have no effect on) the components of the accounting equation: assets, liabilities, shareholders’ equity. Would a gain or loss be recognized on the transaction?
(d) Would the gain or loss be recognized if Sun Company had not repurchased the bonds? Why or why not?

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... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...