When a debtor satisfies a liability by exchanging an asset of lesser value, it records the transfer
A) on the basis of the fair value of the asset transferred and recognizes a gain on the debt restructuring.
B) on the basis of the fair value of the asset transferred and recognizes a loss on the debt restructuring.
C) on the basis of the future value of the asset transferred and recognizes a gain on the debt restructuring.
D) on the basis of the future value of the asset transferred and recognizes a loss on the debt restructuring.

Question

Quizplus · Accepted Answer

When a debtor satisfies a liability by exchanging an asset of lesser value, the transaction is recorded on the basis of the fair value of the asset transferred. This often results in recognizing a gain on the debt restructuring because the liability is extinguished for less than its recorded amount.

When a Debtor Satisfies a Liability by Exchanging an Asset