In a debt extinguishment in which the debt is settled by a transfer of assets with a fair value less than the carrying amount of the debt, the debtor would recognize
A)no gain or loss on the settlement.
B)a gain on the settlement.
C)a loss on the settlement.
D)None of these answer choices are correct.

Question

Quizplus · Accepted Answer

The debtor would recognize a gain on the settlement because the fair value of the assets transferred is less than the carrying amount of the debt, resulting in a reduction of the liability greater than the value of the assets given up.

In a Debt Extinguishment in Which the Debt Is Settled