When a bond repurchase occurs a gain or loss usually

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When a bond repurchase occurs, a gain or loss usually results, and is computed as follows: Gain or Loss on Bond Repurchase = Net Bonds Payable - Repurchase Payment The net bonds payable, also referred to as the bookvalue, is the net amount reported on tne balance sheet. If the issuer pays more to retire the bonds than the amount carried on its balance sheet, it reports a loss on its income statement, usualIy called lossonbondretirement. The issu- er reports a gainonbondretirement if the repurchase price is less than the net bonds payable GAAP prescribes that gains or losses on bond repurchases be reported as part of ordinary income unless the repurchase meets the criteria for treatment as an extraordinary item (unusua, and infrequent, see Module 5). Relatively few debt retirements meet these criteria and, hence most gains and losses on bond repurchases are reported as part of income from continuing operations. How should we treat these gains and losses for analysis purposes? That is, do they carry economic effects? The answer is no-the gain or loss on repurchase is exactly offset by the present value of the future cash flow implications of the repurchase (Appendix 7B demon strati this). Another analysis issue involves assessing the fair value of bonds and other long-te liabilities. This information is relevant for some investors and creditors in revealing unrealiz gains and losses (similar to that reported for marketable securities). GAAP requires compani to provide information about current fair values of their long-term liabilities in footnotes (see Verizon's fair value of debt disclosure in the next section). However, these fair values are no: reported on the balance sheet and changes in these fair values are not reflected in net income
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Module 7 I Liability Recognition and Nonowner Financing 7-20 -ust make our own adjustments to the balance sheet and income statement if we want to changes in fair values of liabilities. ::;""~ncial Statement Footnotes _-" ..... ,..~·es are required to disclose details about their long-term liabilities, including the amounts . 'ed under each debt issuance, the interest rates, maturity dates, and other key provisions. ing is Verizon's disclosure for its long-term debt. g- Term Debt Outstanding long-term obligations are as follows: millions) Interest Rates % Maturities 2010 2009 4.35 - 5.50 2011-2018 $ 6,062 $ 6,196 5.55 - 6.90 2012-2038 10,441 10,386 7.35 - 8.95 2012-2039 7,677 9,671 3.75 - 5.55 2011-2014 7,000 7,000 7.38 - 8.88 2011-2018 5,975 6,118 Floating 2011 1,250 6,246 6.50 - 7.88 2012-2032 2,315 2,334 4.63 -7.00 2011-2033 7,937 8,797 7.15-7.88 2012-2032 1,449 1,449 8.00 - 8.75 2011-2031 880 1,080 6.84 - 8.75 2018-2028 1,700 1,700 23 332 397 (224) (241) 52,794 61,156 7,542 6,105 --- --- $45,252 $55,051 . on Oommunicatlons-cnotespayabte and other . 'erizon Wireless - notes payable and other ..... erizon Wireless-Alltel assumed notes . -elephone subsidiaries-debentures . Other subsidiaries-debentures and other . ployee stock ownership plan loans . Capital lease obligations (average rates of 6.8% and 6.3%, respectively) .
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