Concept Introduction:
The debt restructuring is the process by which a company may delay its bankruptcy. It is done by extending the dates of liability payments or by procuring the loan at lower interest rates.
To define:The way by which gain will be determined as per modified terms under bankruptcy law and if there is no bankruptcy law.
Explanation of Solution
Debt restructuring can be done in various ways. One of the ways of debt restructuring is the modification of terms. In this method, gain on restructuring is recognized when the future payment of
In a bankruptcy organization, the principles set under FASB ASC 470 is not applied. In this case, gain or loss is measured by using a different approach. The gain can be measured by differentiating the present value of the fair value of restructured gain and the previous carrying basis of debt.
Under this law, there will be no gain, if the carrying basis of debt being restructured and the total of interest amount and principal amount after debt restructured (considering the discounted present value as per market rates) is similar.
Want to see more full solutions like this?
Chapter 21 Solutions
Advanced Accounting
- When a debtor is in financial difficulty and a current londer grants concessions to the debtor to refinance an existing debt arrangement, this is referred to as a O a. Troubled debt restructuring. O b. Debt extinguishment. O c. Debt modification. O d. Debt pay-off.arrow_forwardWhat does the term "composition" refer to when discussing the debt restructuring process? Multiple Choice Cancellation of specific debt. Issuance of new debt. Reduction in debt payments. Issuance of new equity to pay off debt. Postponement of debt payments.arrow_forwardIn a debt extinguishment in which the debt is continued with modified terms and the carrying amount of the debt is more than the fair value of the debt A new effective-interest rate must be computed A loss should be recognized by the debtor. No interest expense should be recognized in the future. A gain should be recognized by the debtor.arrow_forward
- What are the general rules for measuring gain or loss byboth creditor and debtor in a troubled-debt restructuringinvolving a settlement?arrow_forwardIn the context of handling debt - like items in M&A, what is the most buyer-friendly approach for items representing a hard claim that must be paid post-close? a. Purchase price adjustments b. Escrow accounts c. Insurance policies d. Working capital adjustments e. Debt refinancingarrow_forwardWhat evidence is necessary to demonstrate the ability to defer settlement of short-term debt?arrow_forward
- (Based on Appendix 14B) When the original terms of a debt agreement are changed because of financialdifficulties experienced by the debtor (borrower), the new arrangement is referred to as a troubled debtrestructuring. Such a restructuring can take a variety of forms. For accounting purposes, these possibilities arecategorized. What are the accounting classifications of troubled debt restructurings?arrow_forwardWhich one of the following is a direct bankruptcy cost? A.Loss of customer goodwill resulting from a bankruptcy filing B.Legal and accounting fees related to a bankruptcy proceeding C,Any financial distress cost D.Management time spent on a bankruptcy proceedingarrow_forwardWhat is a deficiency judgment and how is its value to a lender affected by the Bankruptcy Code?arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning