Guarantees also may trigger financial statement recognition of a liability. Which of the following guarantees would not require financial statement recognition on the books of the guarantor? a. Guarantee to repay the debt of another firm that is solvent and profitable (the interest rate of the debt was not reduced due to the guarantee) b. Guarantee to repurchase accounts receivable sold in a prior transaction if the receivables become uncollectible c. Guarantee to repay the debt of another firm that is insolvent d. Guarantee to repay the debt of another firm that is currently solvent but has no history of profitability (the interest rate of the debt was reduced due to the guarantee)

a. Guarantee to repay the debt of another firm that is solvent and profitable (the interest rate of the debt was not reduced due to the guarantee).

Explanation:

According to the rules of full disclosure, the company is to disclose facts about all transactions or contracts that impact and business. For example of a business is most likely to go out of business because of an unfavourable court ruling, this information must be disclosed in the companie's financial statement. If however the activity will not impact the business there is no need to disclose.

In this instance the guarantee need not be disclosed since the guarantee is to repay debt of a company that is solvent and profitable. The chances that the guarantee will become enforceable is very slim.

Also the interest rate of the debt was not reduced due to the guarantee. So there is no financial impact on the business.