What adjustment should an analyst make to the financial statements to reflect th

Question

What adjustment should an analyst make to the financial statements to reflect the restructuring?

a. Debtor “gains” should be added back to income in the period of the restructuring

b. Debtor “gains” should be added back to income over the remaining life of the restructured obligation.

c. Restructured debt should be restated to fair market value using the reduced interest rate agreed to in the restructuring.

d. Restructured debt should be restated to fair market value using a current market rate of interest to discount the cash flows required by the restructured obligation.

Explanation / Answer

Answer: d. To reflect the restructuring Restructured debt should be restated to fair market value using a current market rate of interest to discount the cash flows required by the restructured obligation

Explanation

For Purpose of Analysis, restructured debt should be restated to fair market value using a current market rate of interest to discount the cash flows required by the (actual or expected) restructured obligation.

Debtor gains resulting from inability to repay loans are almost certainly offset by Asset Impairment.

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