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- This topic has 3 replies, 2 voices, and was last updated 9 years ago by MikeLittle.
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- June 2, 2015 at 2:54 pm #251933
Debtor Corp owes Friendly Bank $90,000 on a 5% interest-bearing non-amortizing note payable in five years, plus accrued and unpaid interest, due immediately, of $4,500. Friendly Bank agrees to a restructuring to assist Debtor Corp, which is suffering losses and is threatening to declare bankruptcy. The interest rate is reduced to 4%, the principal is reduced to $72,500 and the accrued interest is forgiven outright. Future payments will be on normal terms. Original market/effective interest rate is 12%. Discuss the accounting treatment.
June 2, 2015 at 5:13 pm #252003Well, no, I’m not going to discuss the accounting treatment!
You must have got this question from a text book (I know that you haven’t made it up!) and that text book must have provided a solution to this question
Now, if you have a problem with the text book explanation, type out the part of the answer about which you are not happy and I’ll try to explain that part
Ok?
June 2, 2015 at 5:36 pm #252025Hi Mike,
Actually I got it from my lecturer but she hasn’t provided the answers. Ive tried to search for the question hoping to find the answer online but to no avail.
I suppose this has something to do with impairment and there would be a write down on carrying amount of the note payable.
I dont really follow the question when it says the interest rate is reduced to 4% and accrued interest is forgiven outright. So, I thought I’d get that when I see the answer.
June 2, 2015 at 6:10 pm #252060Put “debtor corp and friendly bank” into google search and select the second option that appears on the list (or even the first option, though I couldn’t see the question in the first one)
It’s all there – just don’t tell teacher that you’ve found her sources!
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