Exter Company Is Experiencing Financial Difficulties

question 49

Multiple Choice

Exter Company is experiencing financial difficulties.It has assets worth $2 million,but owes liabilities of $2.1 million.It has a longstanding relationship with the bank.The bank has agreed to forgive $300,000 of debt principal.Because of this debt forgiveness,Exter will recognize income of

• A)$0.
• B)$100,000.
• C)$200,000.
• D)$300,000.

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Definitions:

Net Present Value

The difference between the present value of cash inflows and outflows over a period, used to assess the profitability of an investment.

Working Capital

The disparity between a business's immediate assets and liabilities, showcasing its liquidity and financial stability in the short-term.

Salvage Value

The estimated resale value of an asset at the end of its useful life, considered in depreciation calculations and asset disposal decisions.

Net Present Value

The sum of all future cash flows, both incoming and outgoing, of an investment, discounted back to their present value to analyze its profitability.