Is it correct to say, "That is a bear,"? I found it a bit odd to say "It is a bear," but I was marked wrong when saying "That is a bear." Also, I typed "That's a bear," so it could be the contraction that causes it.
For most cases, "it" is a better translation than "that". To say "that's a bear" a more proper translation would be to use demonstrative pronoun "det där" to say "det där är en björn".