FAR Module 13C Flashcards
How does the creditor perceive the situation
Receiver of the payments
When researching impaired loans it is important to distinguish between what two perspectives
The debtor and the creditor
This will help your research simulation problems
How does the debtor perceive the situation
Paying the payments
Creditors May grant relief to debtors in what two ways
Settlement of the debt at less than the carrying amount
continuation of the debt with a modification of terms
What two requirements must be met for a creditor to classify a restructuring as a troubled debt restructuring
1) The restructuring constitutes a concession
2) The debtor is experiencing financial difficulties
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
A gain/loss may be recognized but this is not extraordinary
If a debtor settles a debt by exchanging assets what two gains or losses may be recognized
1) gain or loss on transfer of assets
2) gain or loss on restructuring of debt
If stock is issued to settle a liability record the stock at what
FV
If a creditor receives an asset to pay off a debt how is it recorded
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
Define a concession
If the creditor does something for the debtor that no one else will do for them this is a concession
T/F
delaying required payments is a concession
FALSE
T/F
impairments affect both the creditor and debtors books
FALSE
impairments affect only the creditors books
T/F
Restructurings affect both the debtors and creditors books
TRUE
What are two examples of restructurings
1) settlements to the debt
2) modification of terms
What are two examples of settlements of debt
1) debtor transfers an asset to the creditor
2) debtor gives the creditor stock
When a note is issued what are the journal entries for the creditor and debtor respectively assuming a discount is involved
Creditor:
Debit note receivable
credit discount on note receivable
credit cash
Debtor:
Debit cash
debit discount on notes payable
credit notes payable
When a creditor determines that it is probable that the debtor will not be able to pay what do they do
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
When a creditor determines that it is probable that the debtor will not be able to pay what JE do they do
Debit bad debt expense
credit allowance
After the creditor has accounted for a loss impairment how do they write journal entries for interest revenue
Debit discount on notes receivable (original amortization schedule) Credit interest revenue (revised amortization schedule) Credit allowance (plug)
What disclosures must a creditor have for impaired loans
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
At maturity what journal entries do the creditor and debtor make when the debtor did not pay the full note
Creditor:
Debit cash
debit allowance
credit note receivable
Debtor:
Debit note payable
credit gain (plug)
credit cash
