Staff Accounting Bulletin 94

SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 211
[Release No. SAB 94]
Staff Accounting Bulletin No. 94

AGENCY:   Securities and Exchange Commission.

ACTION:   Publication of Staff Accounting Bulletin.

SUMMARY:  The interpretations in this staff accounting bulletin
express the views of the staff regarding the period in which a
gain or loss is recognized on the early extinguishment of debt.

EFFECTIVE DATE:  April 18, 1995

FOR FURTHER INFORMATION CONTACT:  Tracey Barber, Office of Chief
Accountant (202) 942-4400, or Douglas Tanner, Division of
Corporation Finance (202) 942-2960, Securities and Exchange
Commission, 450 Fifth Street N.W., Washington, D.C. 20549.
SUPPLEMENTARY INFORMATION:  The statements in staff accounting
bulletins are not rules or interpretations of the Commission nor
are they published as bearing the Commission's official approval.

They represent interpretations and practices followed by the
Division of Corporation Finance and the Office of the Chief
Accountant in administering the disclosure requirements of the
Federal securities laws.

                              Jonathan G. Katz
                              Secretary

Part 211 - (AMEND)
     Accordingly, Part 211 of Title 17 of the Code of Federal
Regulations is amended by adding Staff Accounting Bulletin No. 94
to the table found in Subpart B.

                STAFF ACCOUNTING BULLETIN NO. 94

     The staff hereby adds Section AA to Topic 5 of the Staff
Accounting Bulletin Series.  Topic 5-AA provides guidance
regarding the period in which a gain or loss is recognized on the
early extinguishment of debt.

                TOPIC 5: MISCELLANEOUS ACCOUNTING
                        *   *   *   *   *
AA.  Recognition of a gain or loss on early extinguishment of
debt.

Facts:  In the fourth quarter of its fiscal year, a registrant
announces its intent to call for redemption certain of its
outstanding debt obligations.  By their terms, the debt
obligations are not callable until the third quarter of the
subsequent fiscal year.  The obligations will be redeemed for an
amount that exceeds the net amount at which they are carried on
the registrant's balance sheet.  The debt extinguishment would
not be deemed a troubled debt restructuring addressed by
Statement of Financial Accounting Standards No. 15, "Accounting
by Debtors and Creditors for Troubled Debt Restructurings."  

Question:  Would the staff object if the registrant recorded the
loss expected to result from redemption of the debt obligations
(the excess of the reacquisition cost over the net carrying
amount of the extinguished debt) in the period that it announces
its intent to call the debt for redemption?

Interpretive Response:  Yes.  Accounting Principles Board Opinion
No. 26, "Early Extinguishment of Debt," (APB 26) and its
amendments, including, among others, Statement of Financial
Accounting Standards No. 76, " Extinguishment of Debt," (SFAS 76)
govern the accounting and disclosure for extinguishment of debt. 
Pursuant to APB 26, the gain or loss from an extinguishment of
debt "should be recognized currently in income of the period of
extinguishment."  Paragraph 3 of SFAS 76 identifies the
circumstances under which a debt obligation would be considered
extinguished.  The staff would object to recognition of a gain
or loss from a debt extinguishment in a period other than the
period in which the debt is considered extinguished.  Disclosure
regarding a planned extinguishment and its likely effects would
be required in footnotes to the financial statements and in
Management's Discussion and Analysis to the extent material.  In
periods preceding extinguishment, interest expense and other
carrying costs of the debt should be recognized in accordance
with the terms of the instrument.  Deferred debt issue costs and
debt discount or premium would continue to be amortized based on
the life of the debt that was assumed when the obligation
initially was recorded.

      Some registrants have suggested that Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies," (SFAS
5) requires recognition of an estimated loss on extinguishment
when the extinguishment becomes probable, such as upon an
issuer's announcement of a plan to call the debt.  The staff does
not believe that SFAS 5 supersedes or conflicts with other
authoritative literature providing specific guidance concerning
the accounting for debt extinguishment.  A probable and estimable
loss is recognized under SFAS 5 if, and only if, an asset had
been impaired or a liability had been incurred at the balance
sheet date.  The staff believes that announcement of an intent to
extinguish a liability in the future does not, by itself, result
in a requirement to recognize a loss.  Further, the staff
believes that an issuer's irrevocable offer to repurchase a debt
obligation is not sufficient to result in the debt's
extinguishment for accounting purposes.  A debt holder's
acceptance of that offer at or prior to the balance sheet date by
means of tendering the security and surrendering all rights under
the instrument's terms, however, would be considered an
extinguishment of that debt.  In the case of an issuer's call of
a debt obligation (including an original issue discount
obligation), extinguishment is not considered to have occurred
before interest ceases to accrue or accrete under the terms of
the obligation as a result of the call.  In any case, loss
recognition is not elective under SFAS 5.  The
accounting consequence for an issuer that enters into a binding
contract with a holder of the issuer's debt obligation to
exchange that security at a future date for a specified amount
may be subject to conflicting literature.  The staff intends to
request that the Emerging Issues Task Force address that issue.