A Firm Retired a Long-Term Note by In-Substance Defeasance

question 64

Multiple Choice

A firm retired a long-term note by in-substance defeasance.This means that:

• A)the creditors have been paid.
• B)the debtor has been released of its legal responsibility for all remaining debt payments.
• C)the debt is shown as an offset against the assets used to retire the debt, in the debtor's balance sheet.
• D)there is only a remote chance that the debtor will be required to make further payments on the liability.
• E)the debtor will continue to recognize interest expense on the debt but will make no more payments.

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Definitions:

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting wear and tear, deterioration, or obsolescence.

Capital Expenditures

Money spent by a firm on buying or improving hard assets such as land, factories, or equipment.

Revenue Expenditures

Expenses that are immediately charged against revenues in the same accounting period, generally related to the maintenance and repair of fixed assets or operating expenses.

Accounting System

A methodical procedure of recording, measuring, and communicating financial information for decision making in business.