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Multiple choice

1. In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows,

a) a loss should be recognized by the debtor.
b)a gain should be recognized by the debtor.
c)a new effective-interest rate must be computed.
d)no interest expense or revenue should be recognized in the future.

2.When a business enterprise enters into what is referred to as off-balance-sheet financing, the company
a) is attempting to conceal the debt from shareholders by having no information about the debt included in the balance sheet.
b) wishes to confine all information related to the debt to the income statement and the statement of cash flow.
c) can enhance the quality of its financial position and perhaps permit credit to be obtained more readily and at less cost.
d) is in violation of generally accepted accounting principles

3. When a note payable is issued for property, goods, or services, the present value of the note is measured by

a)the fair value of the property, goods, or services.
b) the market value of the note.
c) using an imputed interest rate to discount all future payments on the note.
d) any of these.

Solution Preview

1. c)a new effective-interest rate must be computed.
This is done to make the present ...

Solution Summary

The solution explains three multiple choice questions relating to debt