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Restructuring Debt Data

In: Business and Management

Submitted By Zaria
Words 589
Pages 3
PART A
Long term bond liabilities are reported at their amortized value. This means that if a bond was issued at a premium, the total bond liability at the end of the reporting period will be the total par value of the bond and the premium received less issuance cost. However, if it was issued at a discount, it would be the total par value less unamortized discount.

Only capital leases are included in the company’s liabilities, operating leases are not. Capital leases are recorded at the present value of the periodic lease payments discounted at the lessee’s cost of capital or the lessor’s implicit rate, if known by the lessee, whichever is lower. Subsequently, the capital lease reported in the balance sheet at the end of each reporting period is the net of principal payment component of the lease payment.

Mortgage payables are reported in the financial statements in the same way that as bonds and capital leases liabilities. The present value of the periodic payments is computed at the discount rate and decreased by the principal payment component of the periodic mortgage payment each period.

It is required that a company reports a minimum liability related to its employee pension plan if and only if the accumulated benefit obligation or ABO exceeds the fair value of the plan assets.

In debt restructuring, if there is a substantive modification of any of the terms of the existing debt or a purchase or other settlement of an existing debt through repayment or replacement, then the debtor needs to account for a gain or loss on the debt restructuring. In the company’s case, the debt was settled earlier than it original maturity date, hence there was a substantive modification of terms.

The following are the journal entries required for the company’s current debt restructuring:
DR: Notes payable 3,000,000
CR: Land 1,950,000
CR: Gain from the

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