SUBJECT: Company Restructuring
Issues of debt restructuring are complex, and usually, impact financial statements depending on the transactions undertaken. Troubled debt restructuring (TDR) accounting issues by debtors are outlined in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 470-60. From the statements, debt restructuring usually represents a TDR when a creditor decides to offer a different offer as indicated in ASC 47060-15-5 (McNellis 38).
Creditors can decide to take property or assets from the debtors to cover their obligations, and this can be in the form of building or land. In the case of Bank America, the creditor will take land, and before this restructuring, Blockbuster is supposed to pay 5,000,000 only because there are no interests that are outstanding. The organization will first of all record an ordinary gain of 750,000 (Fair Value 4,000,000 – Book Value 3.250.000) on property disposal, with a gain on the restructuring of 1,000,000 (5,000,000 total amount minus the fair value of 4,000,000).
Blockbuster will record two journal entries. The first one will indicate the disposal gain, and the value increase, while the second part will record the total gain on restructuring:
Dr. Land 750,000
Cr. Gain on transfer of land 750,000
Dr. Loans Payable 5,000,000
Cr. Land 4,000,000
Cr. Gain on debt restructuring 1,000,000
Secondly, the other form under (ASC 470-60-15-9) is the acceptance of equity from the debtor. Under this form, the creditor is required to change the terms while holding on to the agreement. The creditor can also decide to lower the principal amount, reduce the interest rate, forgive any unpaid interest, or extend the loan duration. In this scenario, the current equity transfer fair value to Bank America will stand at 3,700,000, and Blockbuster will recognize a gain on restructuring of 1,300,000 (5,000,000 reco...
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