The fair value of long-term debt
A)is the amount the firm would have to pay to repurchase the debt on the market in an orderly transaction on the measurement date.
B)is the market price of the bonds on that date, if the bonds trade in an active market.
C)is the present value of the contractual cash payments discounted at the interest rate a lender would require on the measurement date, if the fair value of bonds are not actively traded.
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

The fair value of long-term debt can be determined by any of the methods mentioned in options A, B, and C, depending on the circumstances. If the bonds are actively traded in the market, their market price would determine the fair value. If there is no active market for the bonds, their fair value can be estimated by calculating the present value of the contractual cash flows using the appropriate interest rate. If the firm were to repurchase the debt, the price it would have to pay would also determine the fair value. Therefore, all of the methods mentioned in the options are valid for determining the fair value of long-term debt.

The Fair Value of Long-Term Debt