Restructuring Debt
Restructuring Debt
Part A Company A is in financial trouble. The company is reorganizing its processes and is looking to restructure its debt. Debt restructure is a mutual agreement between a financially troubled company and this company’s creditor, the bank. This process will reorganize the liabilities to prevent foreclosure or even asset liquidation (Business Dictionary, 2012). The liabilities under consideration for Company A are its capital lease obligations, notes outstanding liability, and mortgage outstanding. Company A’s capital lease obligations are currently $54,580. A capital lease is fixed-term lease similar to a loan agreement to the extent of purchasing capital assets with installment payment plans. The current capital lease obligation will not need restructuring but will require regular payments. The notes outstanding are for $3 million is of great concern to the company. The bank has offered to accept land with a book value of $1,950,000 and fair value of $2,400,000. By restructuring this debt, Company A will be able to concentrate on paying off its other current and long-term debts.
The journal entries should this restructure occur are: Land (2,400,000 – 1,950,000) 450,000 Gain on disposition of assets (ordinary) 450,000
Note Payable 3,000,000
Land (fair value) 2,400,000 Gains on troubled debt restructure (extraordinary) 600,000
The mortgage outstanding is for $608,030 and will not require restructuring to settle this amount. A mortgage is a legal agreement with conditional right of ownership on an asset or property to a lender as security for a loan (Business Dictionary, 2012).
Part B
Post Employment Benefit Item | Annual Post Retirement Expense | Cash | Prepaid/Accrued Cost | | APBO | Plan Assets | Unrecognized net gain or loss | Beginning Balance 1/1/07 | | | | | 810,000 cr | | | a) Service Cost | 88,000 dr | | | | 88,000 cr | | | b) Interest cost | 81,000 dr | |
Part A Company A is in financial trouble. The company is reorganizing its processes and is looking to restructure its debt. Debt restructure is a mutual agreement between a financially troubled company and this company’s creditor, the bank. This process will reorganize the liabilities to prevent foreclosure or even asset liquidation (Business Dictionary, 2012). The liabilities under consideration for Company A are its capital lease obligations, notes outstanding liability, and mortgage outstanding. Company A’s capital lease obligations are currently $54,580. A capital lease is fixed-term lease similar to a loan agreement to the extent of purchasing capital assets with installment payment plans. The current capital lease obligation will not need restructuring but will require regular payments. The notes outstanding are for $3 million is of great concern to the company. The bank has offered to accept land with a book value of $1,950,000 and fair value of $2,400,000. By restructuring this debt, Company A will be able to concentrate on paying off its other current and long-term debts.
The journal entries should this restructure occur are: Land (2,400,000 – 1,950,000) 450,000 Gain on disposition of assets (ordinary) 450,000
Note Payable 3,000,000
Land (fair value) 2,400,000 Gains on troubled debt restructure (extraordinary) 600,000
The mortgage outstanding is for $608,030 and will not require restructuring to settle this amount. A mortgage is a legal agreement with conditional right of ownership on an asset or property to a lender as security for a loan (Business Dictionary, 2012).
Part B
Post Employment Benefit Item | Annual Post Retirement Expense | Cash | Prepaid/Accrued Cost | | APBO | Plan Assets | Unrecognized net gain or loss | Beginning Balance 1/1/07 | | | | | 810,000 cr | | | a) Service Cost | 88,000 dr | | | | 88,000 cr | | | b) Interest cost | 81,000 dr | |
References: Business Dictionary. (2012). Debt Restructure. Retrieved from http://www. businessdictionary.com/definition/debt-restructuring.html Business Dictionary. (2012). Mortgage. Retrieved from http://www.businssdictionary.com/definition/mortgage.html