Advanced Accounting Fischer11e_TBChap21.pdf

Topics: Generally Accepted Accounting Principles, Bankruptcy, Balance sheet Pages: 15 (7878 words) Published: August 31, 2014
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Chapter 21--Debt Restructuring, Corporate Reorganizations, and Liquidations

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Question Which of the following is an illustration of an action that can be taken to help a troubled firm without using the court system? Answer

asset transfers to settle debt
equity interest granted in exchange for debt
modifications of interest rates more favorable to the firm
All or a combination can be used.

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A troubled debt restructuring is a process whereby creditors grant concessions to the debtor that they would not consider otherwise. These actions could included accepting assets or equity interest to settle debt or modification of terms of the debt.

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A troubled debt restructuring is a process whereby creditors grant concessions to the debtor that they would not consider otherwise. These actions could included accepting assets or equity interest to settle debt or modification of terms of the debt. Add Question Here

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Question Land and buildings having a book value of $150,000 and a fair value of $185,000 are transferred to a creditor in a troubled debt restructuring to fully settle a loan of $200,000 plus accrued interest of $3,000. What is the amount of the gain on restructuring? Answer

$35,000
$53,000
$15,000
$18,000

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Two gains will be recognized in this transaction. One is the gain on the disposal of the assets of $35,000 (185,000 - 150,000). The gain on the troubled debt restructuring will be $18,000 which is the difference between the book value of the debt and accrued interest and the fair value of the assets received to settle the debt (203,000 - 185,000).

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Two gains will be recognized in this transaction. One is the gain on the disposal of the assets of $35,000 (185,000 - 150,000). The gain on the troubled debt restructuring will be $18,000 which is the difference between the book value of the debt and accrued interest and the fair value of the assets received to settle the debt (203,000 - 185,000). Add Question Here

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Question In a troubled debt restructuring where the debtor elects to transfer an equity interest to a creditor in exchange for the satisfaction of an outstanding debt:
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the debtor may recognize a gain on restructure when the market value of the equity interest is greater than the book value of the debt plus any accrued interest
the debtor may recognize a gain on restructure when the market value of the equity interest is less than the book value of the debt plus any accrued interest
any difference between market value of equity interest and book value of the debt plus accrued interest must be recorded in Retained Earnings.
any difference between market value of equity interest and book value of the debt plus accrued interest must be recorded in Additional Paid in Capital in Excess of Par.

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In a troubled debt restructuring where the debtor elects to transfer an equity interest to the creditor to satisfy an outstanding debt, the debtor records a gain on restructuring measured by the excess of the carrying basis of the debt over the fair value of the equity...
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