In return for promising to make future payments, a firm receives cash or other assets with a measurable cash-equivalent value.The firm records a long-term liability for that amount and the book value of that borrowing at any time equals the
A)future value of all the then-remaining promised payments using the historical market interest rate applicable at the time the firm originally incurred the liability.
B)current value of all the then-remaining promised payments using the historical market interest rate applicable at the time the firm originally incurred the liability.
C)present value of all the then-remaining promised payments using the market interest rate applicable at the current time.
D)present value of all the then-remaining promised payments using the historical market interest rate applicable at the time the firm originally incurred the liability.
E)future value of all the then-remaining promised payments using the using the market interest rate applicable at the current time.

Question

Quizplus · Accepted Answer

The book value of a long-term liability in a firm equals the present value of all the then-remaining promised payments using the historical market interest rate applicable at the time the firm originally incurred the liability. This is because the historical market interest rate reflects the terms of the original borrowing and the promised payments, which were based on that rate.

In Return for Promising to Make Future Payments, a Firm