tailieunhanh - Accounting Webster's Timeline History, 1998 - 1999 by Icon Group International (Jun 6, 2009)_2

Tham khảo tài liệu 'accounting webster's timeline history, 1998 - 1999 by icon group international (jun 6, 2009)_2', tài chính - ngân hàng, tài chính doanh nghiệp phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 26 Critical Financial Accounting Problems Modification of Terms The debtor may ask for a modification of terms. Some of the possible modifications include a. Deduction of the stated interest rate b. Extension of the maturity date c. Reduction of the face amount of the debt d. Reduction of accrued interest. The accounting for modification of terms differs between the debtor and the creditor. The debtor computes the new loan on the basis of undiscounted future cash payments principal plus interest specified by the new terms while the creditor relies on discounted amounts. Two situations may arise for the debtor Situation I When the undiscounted restructured cash flows are higher than or equal to the carrying value of the liability no gain is recognized by the debtor the carrying value of the liability is not reduced and a new effective rate is used to record the interest expense in future periods. Situation 2 When the undiscounted restructured cash flows are lower than the carrying value of the liability a gain is recognized by the debtor the carrying value of the liability is reduced and no interest expense is recognized in future periods. Both situations are examined next. No Gain Is Recognized by Debtor To illustrate situation 1 where no gain is recognized by the debtor let s assume that on December 31 1996 the Mario Company restructures a 12 671 092 debt with its bank that includes a principal of 12 000 000 and accrued interest of 671 092. The new terms include 1. Forgiving the 671 092 accrued interest 2. Reducing the principal by 2 000 000 3. Extending the maturity date from December 31 1996 to December 31 2000 and 4. Reducing the interest rate from 12 to 10 . Long-Term Liabilities 27 Exhibit Mario Company Schedule of Interest Computation Date Cash Paid 10 Interest Expense 4 Reduction of Carrying Amount Carrying Value of the Note 12 31 95 12 671 092 12 31 96 1 000 000 a 506 b 493 12 177 936 c 12 31 97 1 000 000 487 512 11 665 054