Borrowers who retire long-term liabilities debit the liability account for its current book value, credit Cash, and recognizes any difference on the retirement of the debt as a
A)gain when book value exceeds cash disbursement (credit).
B)gain when cash disbursement exceeds book value (credit).
C)loss when book value exceeds cash disbursement (debit).
D)a financing loss (debit).
E)cannot be determined from the above information.

Question

Quizplus · Accepted Answer

When the book value of the long-term liability exceeds the cash disbursement, the borrower has gained by retiring the liability at a lower cost than its current book value. This gain is recognized on the retirement of the debt and is credited to the borrower's account. Therefore, the correct choice is A.

Borrowers Who Retire Long-Term Liabilities Debit the Liability Account for Its