FAR Module 13C

Question 0

How does the creditor perceive the situation

Answer 0

Receiver of the payments

Question 1

When researching impaired loans it is important to distinguish between what two perspectives

Answer 1

The debtor and the creditor

This will help your research simulation problems

Question 2

How does the debtor perceive the situation

Answer 2

Paying the payments

Question 3

Creditors May grant relief to debtors in what two ways

Answer 3

Settlement of the debt at less than the carrying amount

continuation of the debt with a modification of terms

Question 4

What two requirements must be met for a creditor to classify a restructuring as a troubled debt restructuring

Answer 4

1) The restructuring constitutes a concession

2) The debtor is experiencing financial difficulties

Question 5

If the debt is settled by the exchange of assets, how does a debtor recognize the difference between the carrying amount of the debt and the consideration given to extinguish the debt

Answer 5

A gain/loss may be recognized but this is not extraordinary

Question 6

If a debtor settles a debt by exchanging assets what two gains or losses may be recognized

Answer 6

1) gain or loss on transfer of assets

2) gain or loss on restructuring of debt

Question 7

If stock is issued to settle a liability record the stock at what

Answer 7

FV

Question 8

If a creditor receives an asset to pay off a debt how is it recorded

Answer 8

At fair value

the excess of receivable over asset fair value is an ordinary loss
subsequently account for the assets as if purchased for cash

Question 9

Define a concession

Answer 9

If the creditor does something for the debtor that no one else will do for them this is a concession

Question 10

T/F

delaying required payments is a concession

Answer 10

FALSE

Question 11

T/F

impairments affect both the creditor and debtors books

Answer 11

FALSE

impairments affect only the creditors books

Question 12

T/F

Restructurings affect both the debtors and creditors books

Answer 12

TRUE

Question 13

What are two examples of restructurings

Answer 13

1) settlements to the debt

2) modification of terms

Question 14

What are two examples of settlements of debt

Answer 14

1) debtor transfers an asset to the creditor

2) debtor gives the creditor stock

Question 15

When a note is issued what are the journal entries for the creditor and debtor respectively assuming a discount is involved

Answer 15

Creditor:
Debit note receivable
credit discount on note receivable
credit cash

Debtor:
Debit cash
debit discount on notes payable
credit notes payable

Question 16

When a creditor determines that it is probable that the debtor will not be able to pay what do they do

Answer 16

Calculate the current carrying value of the note payable & subtract the present value of what you expect the debtor to pay = The loss from impairment

Revise the amortization schedule accordingly

Question 17

When a creditor determines that it is probable that the debtor will not be able to pay what JE do they do

Answer 17

Debit bad debt expense

credit allowance

Question 18

After the creditor has accounted for a loss impairment how do they write journal entries for interest revenue

Answer 18

Debit discount on notes receivable (original amortization schedule)
Credit interest revenue (revised amortization schedule)
Credit allowance (plug)

Question 19

What disclosures must a creditor have for impaired loans

Answer 19

1) The notes receivable with an allowance account and the notes receivable without an allowance account (all Notes receivable that are impaired)
2) The total balance of impaired loans principal
3) The creditors policy for interest revenue recognition and how they record receipt of cash
4) for each year an income statement is presented the average investment in impaired notes receivable, interest revenue recognized on them, and interest revenue on the cash basis
5) The policy for deciding which loans are reviewed for impairment
6) The factors or reasons that they use to determine whether a loan is impaired
7) if SEC registrant, The changes in the allowance account including beginning and ending balances

Question 20

At maturity what journal entries do the creditor and debtor make when the debtor did not pay the full note

Answer 20

Creditor:
Debit cash
debit allowance
credit note receivable

Debtor:
Debit note payable
credit gain (plug)
credit cash