A company can account for gains or losses from early extinguishment of debt in three ways:
- Amortize over remaining life of old debt
- Amortize over the life of the new debt issue, or
- 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?