troubled debt restructuring

Question 1

How to calculate troubled debt restructure

Answer 1

n a troubled debt restructure involving modification of terms, the accounting depends on the relationship between the carrying amount (CA) of the debt (principal plus unpaid interest) and the total future payments (TFP). If the TFP are greater than the CA, the excess is recognized as future interest expense using a newly computed effective rate and no gain is recognized. If the CA is greater than the TFP, the excess is recognized as a gain, and no future interest expense is recognized. In this case, the CA ($1,000,000 principal + $40,000 accrued interest = $1,040,000) exceeds the TFP ($950,000 + 30,000 = $980,000), so the excess ($1,040,000 - $980,000 = $60,000) is recognized as a gain.