Why a company would repurchase its outstanding debt

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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.


a. What is a debenture? Would such bonds tend to be issued at higher or lower prices than secured bonds? Why?

b. Briefly discuss why a company would repurchase its outstanding debt.

c. Explain how this repurchase 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?

Reference no: EM131408069

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