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.

Question

Quizplus · Accepted Answer

In-substance defeasance occurs when a firm places sufficient funds in an irrevocable trust to cover future debt payments, making it highly unlikely that the debtor will need to make further payments. However, the legal obligation remains until the debt is legally extinguished.

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