Minicase-8 Essay Example | Topics and Well Written Essays - 500 words

Minicase-8 - Essay ExampleHowever, under the ED, only those conversion options that establish an ownership kindred will be classified as equity (ED-FI, p. 4). This means that, once converted, the sh bes are not recoverable and that the holder bears the risk of the changes in the market value of the issuers shares of stock. If the option does not meet this criterion, the undefiled convertible bond will be classified as liability.Prior to the issuance of SFAS 145, the standard utilize to account for aboriginal extinguishment of debt was FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt. Under Statement No. 4, the gains or losings realized from the archean settlement of debt should be shown as part of the companys incomparable items in its income statement. This classification is required regardless of the reason behind the earlier settlement.Under SFAS 145, gains or losses from early extinguishment of debt can now be classified as part of the income o r loss from continue operations in the income statement provided that early extinguishments of debts are part of the recurring transactions for the issuer. However, if such early extinguishments of debts are unusual or are infrequent transactions, the gains or losses realized from such early extinguishments should still be classified as extraordinary items in the income statement. The change was made because FASB recognized that early payments of debt have become part of the risk management st commitgy of certain companies. Such transactions are now also viewed as recurring financing activities that an entity can utilize to manage its interest rate risk. FASB also thinks that this change is consistent with the definition of unusual or extraordinary transactions under APB look No. 30 and will reduce the frequency of using the caption extraordinary items in the income statement.The prerequisite of SFAS 145 related to the classification of gains or losses from early extinguishment o f debt affects