- This topic has 4 replies, 4 voices, and was last updated 6 years, 11 months ago by .
-
Topic
-
This question of Troubled Debt Restructuring is really troubling me. Can someone please explain me the calculation of it.
On January 1, Year 1, Gearty Corporation loans Olinto Fabrix, Inc. $200,000 with a 10% simple interest note payable in ten years. Interest on the note is payable annually and the principal is due at the end of the term. On January 1, Year 3, Olinto has yet to pay any interest and approaches Gearty in the hope of renegotiating the terms. Gearty agrees, forgives the interest on the note accrued to date, and reduces the interest to 8 percent.
The following present value amounts are available.
Present Value of $1 Present Value of an Annuity
8% 10% 8% 10%
Eight years .540 .467 5.767 5.335
Ten years .463 .386 6.710 6.145
As a result of this troubled debt restructuring, Gearty should record:
a. Bad debt expense of $64,480.
b. An extraordinary loss of $39,900.
c. A valuation allowance of $61,240.
d. An extraordinary loss of $56,100.
- The topic ‘FAR- Troubled Debt Restructuring’ is closed to new replies.