Valuation and allocation is most likely an issue for long-term debt if

Question

Quizplus · Accepted Answer

When bonds are issued at a discount or premium, the value of the debt on the balance sheet may not accurately reflect the actual amount owed to bondholders. Valuation and allocation becomes an issue in this case because the company must adjust the value of the debt to its fair value, and allocate the difference between the cash received and the face value of the bonds over the life of the bonds. This can affect financial ratios and the company's overall financial health. Bonds sold on the open market and bank loans may also require valuation and allocation adjustments, but these are not specifically related to long-term debt as in the case of bonds issued at a discount or premium. Short-term leases are not related to valuation and allocation of debt.

Valuation and Allocation Is Most Likely an Issue for Long-Term