In a Troubled Debt Restructuring Where the Debtor Elects to Transfer

question 22

Multiple Choice

In a troubled debt restructuring where the debtor elects to transfer an equity interest to a creditor in exchange for the satisfaction of an outstanding debt:

• A)​the debtor may recognize a gain on restructure when the market value of the equity interest is greater than the book value of the debt plus any accrued interest
• B)​the debtor may recognize a gain on restructure when the market value of the equity interest is less than the book value of the debt plus any accrued interest
• C)​any difference between market value of equity interest and book value of the debt plus accrued interest must be recorded in Retained Earnings.
• D)​any difference between market value of equity interest and book value of the debt plus accrued interest must be recorded in Additional Paid in Capital in Excess of Par.

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Definitions:

Price Earnings Ratio

A valuation metric that compares a company's share price to its per-share earnings, used to evaluate if a stock is over or under-valued.

Risk-adjusted Cost

A financial measure that adjusts the costs of an investment by considering the risk involved, accounting for the riskier nature of some investments compared to others.

Common Stock

A form of corporate equity ownership, a type of security representing units of ownership or equity in a corporation.

Zero-growth Perpetuity

A type of investment that pays a fixed amount of cash flows indefinitely, with no expectation of growth in the payments.