A Debt Instrument with No Ready Market Is Exchanged for Property

question 127

Multiple Choice

A debt instrument with no ready market is exchanged for property whose fair value is currently indeterminable. When such a transaction takes place

• A) the present value of the debt instrument must be approximated using an imputed interest rate.
• B) it should not be recorded on the books of either party until the fair value of the property becomes evident.
• C) the board of directors of the entity receiving the property should estimate a value for the property that will serve as a basis for the transaction.
• D) the directors of both entities involved in the transaction should negotiate a value to be assigned to the property.

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Definitions:

Amortization

The process of gradually writing off the initial cost of an intangible asset over its useful life.

Face Value

The original cost of a security as stated on the certificate. It is the amount repaid to the holder at maturity but not necessarily its current market value.

Intra-Entity Inventory Transfers

Transactions involving the transfer of inventory between departments or units within the same company.

Consolidation Worksheet

An instrument utilized for compiling consolidated financial reports, which facilitates the integration of financial data from a parent company and its subsidiary entities.