M351_Notes-Day_6_Bonds_3 - See example transaction on...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
M351 Notes, Class 6: Bonds, pages 691-706 A. Ratios in Chapter 14: 1. Debt to Total Assets = Total Debt Total Assets What must KWW assume is included in Total Debt in the calculation in Illustration 14-21 on page 696? 2. Times Interest Earned = Income before taxes and interest expense Interest expense 3. Accounting equation: C + OA = L + PIC + R – X + G – L – D Where: C = Change in Cash, OA = Change in other assets, L = Change in Liabilities, PIC = Change in paid-in capital, R = Revenues, X = Expenses, G = Gains, L = Losses, and D = Dividends On the exam I will likely include some questions asking you to assess the effects of transactions I describe on the financial ratios and on the financial statements. B. Accounting for Troubled Debt 1. Impairment Loss = Carrying amount of investment minus Present value of revised cash flows at historical discount rate. See Illustration 14A-5 on page 700. 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2. Troubled debt restructuring A. Settlement of debt at less than its carrying amount
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: See example transaction on transfer of assets on page 701 and note that the lender reords a loss by making a Debit to Allowance for Doubtful Accounts. The borrower records a loss on the assets transferred to the lender and a gain on restructuring of the debt. B. Continuation of debt with revised terms Can include: Reduction of stated interest Extension of maturity date for face amount Reduction of the face amount due Reduction or deferral of interest When the total future cash flows for the revised debt are greater than or equal to the pre-restructuring carrying amount, the borrower records no gain. The lender does recognize the loss and modifies its journal enntries (see example on pages 702-bottom of 704. When the pre-restructuring carrying amount exceeds the total future cash flows, the borrower records a gain (see example starting on the bottom of page 704 and continuing through the top of page 706). 2...
View Full Document

This note was uploaded on 10/14/2009 for the course MGMT 351 taught by Professor Staff during the Spring '08 term at Purdue University-West Lafayette.

Page1 / 2

M351_Notes-Day_6_Bonds_3 - See example transaction on...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online