Chapter 14: 14-27Q_a (page 753)
(a) In a troubled-debt situation, why might the creditor grant concessions to the debtor?
The creditor will allow concessions in a troubling situation as it seems to be a more reasonable method for boosting investment recovery.
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What is the fair value option? Briefly describe the controversy of applying the fair value option to financial liabilities.
All of the following are differences between IFRS and GAAP in accounting for liabilities except:
a) When a bond is issued at a discount, GAAP records the discount in a separate contra liability account. IFRS records the bond net of the discount.
b) Under IFRS, bond issuance costs reduce the carrying value of the debt. Under GAAP, these costs are recorded as an asset and amortized to expense over the terms of the bond.
c) GAAP, but not IFRS, uses the term “troubled-debt restructurings.”
d) GAAP, but not IFRS, uses the term “provisions” for contingent liabilities which are accrued.
What are some forms of off-balance-sheet financing?
Question: How are gains and losses from extinguishment of a debt classified in the income statement? What disclosures are required of such transactions?
BE14-2 (L01) The Colson Company issued $300,000 of 10% bonds on January 1, 2017. The bonds are due January 1, 2022, with interest payable each July 1 and January 1. The bonds are issued at face value. Prepare Colson’s journal entries for (a) the January issuance, (b) the July 1 interest payment, and (c) the December 31 adjusting entry.
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