Question

For a troubled debt restructuring involving only a modification of terms, which of the following items specified by the new terms would be compared to the carrying amount of the debt to determine if the debtor should report a gain on restructuring?

a. The total future cash payments.
b. The present value of the debt at the original interest rate.
c. The present value of the debt at the modified interest rate.
d. The amount of future cash payments designated as principal repayments.

Answer 1

A) The total future cash payments.

Step-by-step explanation:

When a delinquent debtor is restructuring his/her debt and it requires the modification of the credit terms, it will recognize a gain only if the future cash payments (including principal and interest) are lower than the current amount owed.

The debtor will recognize that difference by writing down the carrying amount of the debt as a gain.

Answer 2

The correct option is A

Step-by-step explanation:

In a restructuring involving only a change in terms the total future cash payments should be compared to the carrying amount to know if a gain should be recognized