This preview shows pages 1–3. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: EXERCISE 14-21 (a) No. The gain recorded by Bradtke is not equal to the loss recorded by Firstar Bank under the debt restructuring agreement. (You will see why this happens in the following four exercises.) In response to this “accounting asymmetry” treatment, the FASB stated that Statement No. 114 does not address debtor accounting because the FASB was concerned that expansion of the scope of the statement would delay its issuance. (b) No. There is no gain under the modified terms because the total future cash flows after restructuring exceed the total pre-restructuring carrying amount of the note (principal): Total future cash flows after restructuring are: Principal $1,600,000 Interest ($1,600,000 X 10% X 3) 480,000 $2,080,000 Total pre-restructuring carrying amount of note (principal): $2,000,000 (c) The interest payment schedule is prepared as follows: BRADTKE COMPANY INTEREST PAYMENT SCHEDULE AFTER DEBT RESTRUCTURING EFFECTIVE-INTEREST RATE 1.4276% Date Cash Paid (10%) Interest Expense (1.4276%) Reduction of Carrying Amount Carrying Amount of Note 12/31/07 $2,000,000 12/31/08 $160,000 a $28,552 b $131,448 c 1,868,552 12/31/09 160,000 26,675 133,325 1,735,227 12/31/10 160,000 24,773 d 135,227 1,600,000 Total $480,000 $80,000 $400,000 a $1,600,000 X 10% = $160,000. b $2,000,000 X 1.4276% = $28,552. c $160,000 – $28,552 = $131,448....
View Full Document
This note was uploaded on 12/04/2009 for the course MGMT 351 taught by Professor Staff during the Spring '08 term at Purdue University.
- Spring '08