assignment 1.docx - On American Bank enters into a debt restructuring agreement with Barkely Company which is now experiencing financial trouble The

assignment 1.docx - On American Bank enters into a debt...

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On December 31, 2017, American Bank enters into a debt restructuring agreement with Barkely Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $3,000,000 note receivable by the following modifications: a. Reducing the principal obligation from $3,000,000 to $2,400,000. b. Extending the maturity date from December 31, 2017 to January 1, 2021. c. Reducing the interest rate from 12% to 10%. Barkley pays interest at the end of each year, beginning with an interest payment on December 31, 2018. It makes payments for each of the following two years. On January 1, 2021 Barkley pays $2,400,000 in cash to American Bank. a. Will the gain recorded by Barkley Company be equal to the loss recorded by American Bank under the restructuring? Ans ) No. The gain recorded by Barkley will not be equal to the loss recorded by American Bank under the debt restructuring agreement because GAAP does not address debtor accounting. b. Can Barkley Company record a gain under the term modification mentioned above?
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