For a trouble debt restructuring involving only modification of terms, it is appropriate for a debtor to recognize a gain when the carrying amount of the debt
A) Exceeds the total future cash payments specified by the new terms
B) Is less than the total future cash payments specified by the new terms
C) Exceeds the present value specified by the new terms
D) Is less than the present value specified by the new terms

Question

Quizplus · Accepted Answer

A gain should be recognized when the carrying amount of the debt is less than the total future cash payments specified by the new terms, as this indicates a reduction in the amount of the obligation. If the carrying amount exceeds the total future cash payments, the debtor would recognize a loss. The present value specified by the new terms is not relevant for determining whether a gain or loss should be recognized.

For a Trouble Debt Restructuring Involving Only Modification of Terms