In financial accounting, balance sheet liabilities should generally be recorded at their:

• A. Expected selling price of the liability in an orderly transaction between market participants
• B. Original amount of cash received, regardless of changes in market interest rates
• C. Current market value of the creditor’s claim on the reporting date
• D. Present value of the future cash payments required to settle the obligation (i.e., the amount necessary to satisfy the liability)

Answer: (D)

Verified step by step guidance

1. Understand that liabilities on the balance sheet represent obligations the company must settle in the future, typically involving cash payments.
2. Recognize that the value of a liability should reflect the amount the company expects to pay to settle it, not just the original amount borrowed or the market price of the claim.
3. Learn that the present value concept is used to account for the time value of money, meaning future payments are discounted back to their value in today's terms.
4. Apply the present value formula to calculate the liability amount: \(PV = \sum \frac{C_t}{(1 + r)^t}\), where \(C_t\) is the cash payment at time \(t\), \(r\) is the discount rate, and \(t\) is the time period.
5. Conclude that recording liabilities at the present value of future cash payments provides a more accurate and relevant measure of the obligation on the balance sheet.