Accy 510 Troubled Debt homework - Then on the 31 st of...

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ACCY 510, Financial Reporting Standards Department of Accountancy, Fall 2011 Troubled Debt Homework On the 1 st of January, 2006, Sinkhole Company issued a $1 million note to Mayo Inc. in exchange for $887,000 in cash. The note has a cash interest rate of 10% per year, with interest payable at the end of each calendar year (on each 31 st of December). The effective interest rate for the note was 12%. The note matures on the 31 st of December, 2015. On the 31 st of December, 2010, Sinkhole notified Mayo that it could not make its yearly interest payment to Mayo due to temporary cash flow problems.
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Unformatted text preview: Then, on the 31 st of December, 2011, Sinkhole again missed its interest payment. Assume each firm has a 31 st of December fiscal year-end. Show how each firm’s 2011 annual financial reports should reflect the 2010 and 2011 events: 1) Show how each firm’s balance sheet, income statement, and statement of cash flows for 2011 should report the note (showing your work fully); and 2) Describe the additional disclosures each firm should make about the note in the footnotes to the financial statements and why the disclosures are useful to the firm’s stakeholders....
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