Trouble debt restructuring

Question 1

Transfer of assets

Recognition of ordinary gain/loss

Answer 1

FV asset transferred

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Ordinary gain/loss

Question 2

Transfer of assets

Recognition of (possibly extraordinary) gain

Answer 2

Carrying amount of the payable

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Gain (possibly extraordinary)

Question 3

Transfer of equity interest

Recognition of (possibly extraordinary) gain

Answer 3

Carrying amount of the payable

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Gain (possibly extraordinary)

Question 4

Modification of terms

What is compared to the carrying amount to determine if gain?

Answer 4

The total future cash payments

Question 5

When foreclosure is not probable but the loan is impaired which amount may the creditor use to measure the impairment?

Answer 5

The loan’s observable market price

The FV of the collateral if the loan is collateral dependent

Question 6

Extraordinary gain

(Cash is received in settlement of note)

Answer 6

Principal owed xxx

+Interest accrued xxx

Net carrying amount xxx

(Settlement price-cash) xxx

Gain from debt restructuring xxx

Question 7

Gain from modification of terms

Answer 7

Carrying amount of payable

Face value of note payable

+Accrued interest

**Carrying amount of payable **

Total future cash payments

Principal after restructure

+Interest payment(s) required (if applicable)

Total Future Cash payments

Carrying amount of payable – Total future cash flows=Gain

Question 8

If default does occur, how is the loss determined?

Answer 8

Total original purchase (cash+note)

Less: (original note payable-principal payments)

Loss on disposal of asset