When using fair value accounting it would be to a firm’s benefit to report the liability at fair value when it has

Answer (C) is correct. A firm would want to report a liability at fair value when its fair value is less than its carrying amount. The fair value of this bond ($27,440,000 = $28,000,000 × .98) is less than its carrying amount of $28,000,000. This would decrease the liabilities section of the balance sheet, which a company would prefer to do.