Present Value 13C - Debt Restructure

Question 1

When accounting for troubled debt, Impairments only affect what according to ASC 310?

Answer 1

The creditors books

Question 2

What books do restructurings affect?

Answer 2

Creditors & Debtors

Question 3

What are the two types of restructurings?

Answer 3

1. Settlement of Debt

2. Modification of Terms

Question 4

In what two ways does the debtor settle debt?

Answer 4

1. Transfer of assets to creditor

2. Transfer of stock to creditor

Question 5

When calculating a restructure, what is the original rate treated like?

Answer 5

The Effective Interest Rate

This must be the rate used to Discount Future Cash Flows and to figure the Interest Revenue

Question 6

If an asset is used to Settle Debt, is there a gain/loss recognized on the Fair Value of the Asset?

Answer 6

Yes. The asset is traded at Fair Value and a Gain/Loss is recognized

Question 7

May debt modifications be valued at fair value?

Answer 7

Yes

Question 8

Why would there be two different gains or losses or a combination of both when a debtor exchanges an asset to settle debt?

Answer 8

There could possibly be a gain and/or loss for:

1. The asset valuation in preparation for exchange - Basically the Carrying Value of the assets vs the FMV
2. The exchange of the asset for the debt settlement - Basically the FMV of the asset vs the amount of the debt settled