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When a corporation redeems a bond early at a price above its carrying amount, the resulting loss is reported in which way on the income statement?
AAs an operating expense reported within cost of sales
BAs a direct reduction of total operating revenue
CAs an increase to the bonds payable liability balance
DAs a non-operating item, outside normal operations
Answer & Solution
Correct answer: D. As a non-operating item, outside normal operations
1. Redeeming bonds is not a corporation's primary line of business.
2. A gain or loss on early redemption arises from a non-operational transaction.
3. It is therefore reported as a non-operating (other) item, not as an operating revenue or expense.
4. Options A and B treat it as operating, which contradicts its non-operational nature.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §5.4 "Calling Bonds", p.234_
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