Bond Repurchases: A Teaching Case

Abstract

Companies can buy back and retire their own bonds before maturity, resulting in a possible gain or loss on the extinguishment of debt. What would happen if a company repurchased its own bonds before maturity but did not retire them, potentially holding them for resale later before the bonds mature? This case gives students an opportunity to explore how the repurchase of bonds held for resale should be accounted for, including the repurchase transaction, the disposition of any gain or loss, and the possible transaction to resell the bonds later.