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Chapter 14: 14-27Q_b (page 753)

(b) What type of concessions might a creditor grant the debtor in a troubled-debt situation?

Short Answer

Expert verified

The concession that the creditor might grant in a troubled-debt situation is to diminish the face amount of the obligation.

Step by step solution

01

Meaning of trouble debt situation

The term trouble debt situation refers to the case where adebtor cannot repay the loan amountto the company. Therefore, in this situation, the grantor or the company gives certain concessions to the debtor as per their financial distress.

02

Types of concessions that the creditor grants the debtor in a troubled-debt situation

The creditor might allow concession on any of the following:

  • Decreasing the specified rate of interest.
  • Expanding the due date of the par value of the debt.
  • Acquiring non-cash assets or equity interests with respect to cash in settlement

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Most popular questions from this chapter

On January 1, 2017, Henderson Corporation redeemed \(500,00 of bonds at 99. At the time of redemption, the unamortized premium was \)15,000. Prepare the corporation’s journal entry to record the reacquisition of the bonds.

(a) In a troubled-debt situation, why might the creditor grant concessions to the debtor?

Find the polynomials q(x)andr(x)such that f(x)=g(x)q(x)+r(x),andr(x)ordegr(x)<degg(x):

(a)f(x)=3x4-2x3+6x2-x+2andg(x)=x2+x+1in□[x].(b)f(x)=x4-7x+1andg(x)=2x2+1in□[x].(c)f(x)=2x4+x2-x+1andg(x)=2x-1in□5[x].(d)f(x)=4x4+2x3+6x2+4x+5andg(x)=3x2+2in□7[x].

On January 1, 2017, Aumont Company sold 12% bonds having a maturity value of \(500,000 for \)537,907.37, which provides the bondholders with a 10% yield. The bonds are dated January 1, 2017, and mature January 1, 2022, with interest payable December 31 of each year. Aumont Company allocates interest and unamortized discount or premium on the effective-interest basis.

Instructions

(Round answers to the nearest cent.)

  1. Prepare the journal entry at the date of the bond issuance.
  2. Prepare a schedule of interest expense and bond amortization for 2017–2019.
  3. Prepare the journal entry to record the interest payment and the amortization for 2017.
  4. Prepare the journal entry to record the interest payment and the amortization for 2019.

Describe the two criteria for determining the valuation of financial assets.
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