F5/M6 Troubled Debt Restructuring and Settlement

Question 1

In a Transfer of assets to settle a liability, recognize the gain/loss on the difference between the asset FV and NBV & a gain on the discharge of the debt. What is the gain on the discharge of the debt?

Answer 1

FV of asset transferred (-) Carrying amount of liability

Question 2

Modification of Terms

Answer 2

Record a gain on the difference between carrying amount and future undiscounted cash flows. Reduce the carrying amount b the gain recognized

Question 3

(T/F): The creditor recognizes an impairment, the assets or equity received should be accounted for at fair value

Answer 3

True

- Record as Bad Debt Expense

Question 4

Modification of Terms (Use Present Value) (Creditor)

Answer 4

New cash flows at historical interest rate
Dr: Bad Debt Expense
Cr: Allowance for Credit Loss

Question 5

Modification of Terms (Debtor)

Answer 5

Dr: Notes payable (Old)
Dr: Interest Payable
Cr: Note Payable (New Note)
Cr: Gain on restructuring