In a Troubled Debt Restructuring in Which the Debt Is

question 53

Multiple Choice

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)an extraordinary gain should be recognized by the debtor.
• B)a gain should be recognized by the debtor.
• C)a new effective-interest rate must be calculated.
• D)no interest expense or revenue should be recognized in the future.

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Definitions:

Expected Rate of Return

The projected percentage return on an investment over a given period, factoring in all known variables.

Beta

A measurement of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

Capital Market Line

A theoretical line representing the risk versus return of the market of all investable assets, assuming risk-free borrowing and lending rates.

Security Market Line

A representation of the capital asset pricing model which shows the relationship between risk (as measured by beta) and expected return of investments.