What does reacquisition price mean on the CPA exam?
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Reacquisition price. What it costs to retire debt early, including any call premium. Compared to the net carrying amount to work out the gain or loss on extinguishment.
Defined against ASC 470-50-40-2.
Worked example
On an interest payment date, a company calls its $2,000,000 face value bonds at 103. At that date the bonds carry $46,000 of unamortized discount and $18,000 of unamortized debt issuance costs, which the company presents as a reduction of the debt.
What is the gain or loss on extinguishment?
| Reacquisition price: face value at the call price of 1032,000,000 x 103% | 2,060,000 |
| Net carrying amount: face value less unamortized discount and issuance costs2,000,000 - 46,000 - 18,000 | 1,936,000 |
| Loss on extinguishment: reacquisition price above net carrying amount2,060,000 - 1,936,000 | 124,000 |
Answer: A $124,000 loss on extinguishment, recognized in income for the period in which the bonds are retired.
The trap: Comparing the call price with face value, which gives a $60,000 loss, or remembering the discount but not the issuance costs, which gives $106,000. The net carrying amount takes out both, because both are presented as reductions of the debt.
Based on ASC 470-50-40-2; ASC 835-30-45-1A.
Which CPA exam sections use reacquisition price?
Reacquisition price appears in the FAR section of the CPA exam.
Related terms
- carrying amount: What an asset or liability is currently shown at on the balance sheet: its original amount adjusted for depreciation, amortization, impairment or accrual.
- transaction price: The consideration an entity expects to be entitled to for transferring goods or services, excluding amounts collected for third parties such as sales tax.
- equity method: Used when the investor can exercise significant influence, presumed at 20% or more of the voting stock.
- held for sale: A classification for a component the entity is actively marketing and expects to sell within a year.
- impairment: Writing an asset down because its carrying amount can no longer be recovered.
- asset acquisition: Buying a group of assets that does not amount to a business.