Fischer Chap 21
Fischer Chap 21
Fischer Chap 21
817
Ch. 21Exercises
EXERCISES
Note: Some calculations may vary due to rounding or method of calculation. Answers presented
have been determined using Excel.
EXERCISE 21-1
Alternative AIncome Statement Impact
First Month:
Gain on land:
Fair market value .........................................................................
Carrying value..............................................................................
Gain .............................................................................................
$ 380,000.00
(260,000.00)
$ 120,000.00
Gain on restructuring:
Remaining carrying value of debt:
Original carrying value.............................................................
Value of land ...........................................................................
Current carrying value .............................................................
$ 566,975.00
(380,000.00)
$ 186,975.00
40
$ 5,068.00
$ 202,704.00
$ 186,974.50
0.40%
$
747.90
Second Month:
Interest expense:
Current carrying value .................................................................
where n = 39, interest rate = 4.8%/12,
and the payment is $5,067.60.
Interest rate (4.8%/12) .................................................................
Interest expense ..........................................................................
818
$ 182,654.73
0.40%
730.62
Ch. 21Exercises
$ 380,000.00
(260,000.00)
$ 120,000.00
$ 566,974.50
(380,000.00)
$ 186,974.50
60
$ 3,000.00
$ 180,000.00
$ 186,974.50
(180,000.00)
$ 6,974.50
Not applicable
Second Month:
Interest expense ...................................................................................
819
Not applicable
Ch. 21Exercises
EXERCISE 21-2
Effect on Net Income
Increase (Decrease)
Item
Exchange of preferred stock for debt ($5,100,000 of preferred stock,
at market value in exchange for $5,500,000 of debt).............................
Exchange of land for debt ($3,000,000 of land at book value in
exchange for $4,500,000 of debt) ..........................................................
Restructuring of remaining debt of $10,875,000 with semiannual
payments of $818,016. The sum of the payments is $16,360,320
(20 $818,016). Since the sum of the payments exceeds the
unpaid balance, no gain is recognized on the restructuring...................
Total effect on net income............................................................................
Retained earnings before restructuring........................................................
Adjusted retained earnings ..........................................................................
400,000
1,500,000
0
$ 1,900,000
(3,400,000)
$(1,500,000)
In order to eliminate the deficit in retained earnings, the contributed capital in excess of par value would be reduced to zero, and the par value of the common stock would have to be reduced
by $500,000.
EXERCISE 21-3
(1) The impact on the ratios is directly related to how each of the actions taken by management impacts the financial statements. The recognition of impairment losses will decrease
long-lived assets and decrease net income and corresponding shareholders equity. Future
periods will base depreciation/amortization on the long-lived assets on the lower impaired
value, which will increase future income. The restructuring of the long-term debt will result
in a restructuring gain. However, since the future cash payments are less than the carrying
basis of the original debt, no interest expense will be recognized in future periods. The
adjustment of the par value of common stock in order to eliminate the deficit in retained
earnings will have no impact on net income nor will it change the total amount of shareholders equity. Given the above, it would appear that the current ratio would be affected by
the current portion of the restructured debt. Given the fact that the payments are less than
the carrying basis of the original debt, the current portion could very easily be less and,
therefore, the current ratio could increase. It is clear that the debt restructuring would leave
the company with less debt, which, absent any other information, would result in a
decrease in the debt-to-equity ratio. However, the net effect on income of the impairment
loss and the gain on restructuring will obviously have an impact on equity. Therefore, the
debt-to-equity ratio must also reflect any changes due to these transactions. The return on
equity would be affected by the net effect on income of the impairment loss and the restructuring gain. This net effect would obviously impact net income and the balance in retained
earnings. The adjustment of par would have no effect on the return on equity because the
total equity is not changed as a result of eliminating the deficit.
(2) Net income in future periods would be affected by lower depreciation/amortization expense
and no interest expense on the new restructured debt.
820
Ch. 21Exercises
EXERCISE 21-4
A
$ 84,000
(80,000)
$
4,000
Outstanding Debt
B
C
$ 520,000
$328,000
D
$350,000
(120,000)
(380,000)
$ 20,000
$328,000
$301,661
$300,000
$320,000
(48,339)
821
Ch. 21Exercises
EXERCISE 21-5
(1)
Debt Restructuring
Nonbankruptcy
Bankruptcy
Approach
Approach
Carrying basis of debt:
Principal .........................................................................
Accrued interest .............................................................
$2,100,000
72,737
$2,172,737
$2,100,000
72,737
$2,172,737
$2,400,000
N/A
$2,400,000
N/A
$1,758,004
$1,758,004
$ 200,000
0
$ 200,000
$ 200,000
214,733
$ 414,733
$ 427,263
$ 641,996
Note A: The carrying value of the debt that is not forgiven is $1,972,737 ($2,100,000
$200,000 + $72,737). If this debt is to be serviced over 60 months at an interest rate of 8%,
the monthly payments are $40,000. The total of these payments is $2,400,000 ($40,000
60 months). The net present value of these payments using a market rate of interest of 13%
is $1,758,004.
Note B: Under the nonbankruptcy approach, a gain on restructuring results only if the sum of
the future payments is less than the carrying basis of the restructured debt. Under the bankruptcy approach, a gain is recognized to the extent that the fair value of the consideration
received ($1,758,004) is less than the carrying basis of the restructured debt ($1,972,737).
Note C: Under the nonbankruptcy approach, the total interest expense is represented by the
difference between the sum of the future payments ($2,400,000) and the carrying basis of
the restructured debt ($1,972,737). In a bankruptcy approach, the total interest expense is
represented by the difference between the sum of the payments ($2,400,000) and the present value of the future payments using a market rate of interest ($1,758,004).
(2)
Retained earnings deficit......................................................
Gain on forgiveness and restructuring of debt .....................
Revised deficit......................................................................
Present paid-in capital in excess of par value......................
Necessary reduction in par value of common stock.............
Nonbankruptcy
Approach
$ 500,000
(200,000)
$ 300,000
(80,000)
$ 220,000
Bankruptcy
Approach
$ 500,000
(414,733)*
$ 85,267
(80,000)
$
5,267
*If the gain had been recorded directly as an increase in paid-in capital rather than as a
component of net income, the answer would remain the same.
822
Ch. 21Exercises
EXERCISE 21-6
(1)
Item
Loan A restructuring:
$3,580,000 restructured at 10%, 8 years, and monthly
installments. The monthly payment is $50,000.....................................
Loan B restructuring:
No effect on cash outflows....................................................................
Loan C restructuring:
Debt to be paid in installments is $1,787,500 ($2,000,000 +
$37,500 $250,000). Given n = 20 and i = 2.25%,
the payment is $111,973 ......................................................................
Total quarterly cash outflows.. .....................................................................
(2)
Item
Loan A restructuring:
Gain on forgiveness of debt................................................ ...
Gain on restructuring of remaining debt:
Total payments = $4,800,000 (96 $50,000). Net present
value of payments is $3,295,074 versus carrying basis of
$3,580,000 ........................................................................
Interest expense:
Based on stated rate of 10% ............................................... ..
Based on imputed rate of 7.6644% (see note) .................... ..
Quarterly
Cash Outflows
$150,000
0
111,973
$261,973
$500,000
284,926
(81,812)
(68,075)
Loan B restructuring:
Gain on forgiveness of accrued interest. ...............................
Gain on exchange of preferred stock.....................................
25,000
100,000
25,000
100,000
Loan C restructuring:
Gain on transfer of land .........................................................
Interest based on 9%........................................................... ..
50,000
(40,219)
50,000
(40,219)
$837,895
$566,706
Note: This is the interest rate given a periodic payment of $50,000, the 96 monthly periods,
and a present value of $3,580,000.
823
Ch. 21Exercises
EXERCISE 21-7
Accounts payable..........................
Note payableA ...........................
Note payableB ...........................
Mortgage payable .........................
Accrued interest ............................
Other liabilities...............................
Fully
Secured
$130,000
Partially
Secured
$560,000
300,000
Liabilities
Unsecured
With
Without
Priority
Priority
$150,000
40,000
200,000
180,000
12,000
$322,000
$860,000
$10,000
$10,000
14,000
$404,000
Total
$ 280,000
600,000
500,000
180,000
12,000
24,000
$1,596,000
Realizable
Value
Assets to be applied against
the liabilities:
Inventory
Inventory ....................................
Receivables ...............................
Equipment..................................
Equipment..................................
Land ...........................................
Cash...........................................
Other assets...............................
Dividend .....................................
$ 150,000 $130,000
$ 20,000 $ 150,000
200,000
$200,000
200,000
360,000
360,000
360,000
300,000
300,000
300,000
60,000
60,000
60,000
260,000 192,000
68,000
260,000
60,000
$10,000
50,000
60,000
45,000
45,000
45,000
$1,435,000 $322,000 $860,000 $10,000 $243,000 $1,435,000
100.0%
824
100.0%
100.0%
60.15%
$300,000
$200,000
60.15%
120,300
$420,300
Ch. 21Exercises
EXERCISE 21-8
(1)
Nonbankruptcy Approach
Alternative A
Alternative B
Income Statement
Gain on sale of land:
Market value of land ............
Basis of land ........................
Gain on sale of land.............
Land transaction costs.........
Net gain on sale of land .......
Gain on restructuring
(see Schedule A).............
Income statement effect ............
Bankruptcy Approach
Alternative A Alternative B
$550,000
(400,000)
$150,000
(35,000)
$115,000
$550,000
(400,000)
$150,000
(35,000)
$115,000
$550,000
(400,000)
$150,000
(35,000)
$115,000
$550,000
(400,000)
$150,000
(35,000)
$115,000
85,000
$200,000
0
$115,000
355,393
$470,393
361,027
$476,027
Balance Sheet
Before restructuring:
Land.....................................
Note payable........................
Retained earnings................
$ 400,000
2,000,000
0
$ 400,000
2,000,000
0
$ 400,000
2,000,000
0
$ 400,000
2,000,000
0
After restructuring:
Land.....................................
Note payable........................
Retained earnings................
$
0
1,400,000
200,000
$
0
1,700,000
115,000
$
0
1,129,607
470,393
$
0
1,338,973
476,027
Schedule A
Nonbankruptcy Approach
Alternative A
Alternative B
$2,000,000
$2,000,000
(300,000)
(515,000)
$1,485,000
$1,700,000
(1,400,000)
(1,700,000)
85,000
Bankruptcy Approach
Alternative A Alternative B
$2,000,000
$2,000,000
(515,000)
(300,000)
$1,485,000
$1,700,000
1,129,607
$ 355,393
1,338,973
$ 361,027
(2) Given a nonbankruptcy approach, Alternative B would be preferable since it involves giving
up the least net present value in satisfaction of the original debt. Furthermore, Alternative B
retains some of the cash that was realized from the sale of the land. It is possible that this
cash can be put to a more productive use rather than being invested in a nonoperating asset such as idle land. If interest rates were to rise over time, it might be advantageous to
lock into an interest rate for a longer period of time. Alternative B has a lower net present
value of consideration given up in satisfaction of the debt than does Alternative A as set
forth below.
Net present values:
Cash from sale of land.........
Remaining payments ...........
Total.....................................
Alternative A
Alternative B
$ 515,000
1,129,607
$1,644,607
$ 300,000
1,338,973
$1,638,973
825
Ch. 21Exercises
EXERCISE 21-9
Fully
Secured
$ 85,000
30,000
$115,000
(115,000)
$
Partially
Secured
$
18,000
21,000
Fully
Secured
Partially
Secured
$115,000
$29,000
Unsecured
With
Without
Priority
Priority
$
23,000
12,000
4,200
$ 39,000
(29,000)
$ 10,000
(10,000)
$
$39,200
$39,200
$39,200
(39,200)
$
100.00%
80,000
31,000
$111,000
$111,000
10,000
$121,000
(57,800)
$ 63,200
47.77%
Unsecured
With
Without
Priority
Priority
$39,200
$33,777
Total
$144,000
4,777
$115,000
Total
$ 85,000
18,000
21,000
30,000
23,000
12,000
4,200
80,000
31,000
$304,200
(144,000)
$160,200
$160,200
(97,000)
$ 63,200
$39,200
$53,023
$53,023
39,200
4,777
53,023
$241,000
Note: Although the solution to this exercise is fairly straightforward, setting up a presentable schedule may be a challenge to students. This is an excellent occasion to discuss with students the importance of documenting ones work in an understandable
and user friendly manner.
826
Ch. 21Exercises
EXERCISE 21-10
(1)
30,000
39,000
22,500
36,000
Cash disbursements:
Payment of loan ......................
Payment of accounts payable.
Payment of bank loan .............
(12,000)
(25,000)
(36,000)
Subsequently discovered:
Liabilities .................................
Ending balance .......................... $ 66,500
$590,000
Unsecured
With
Without
Priority
Priority
Fully
Secured
Partially
Secured
$200,000
$175,000 $54,000
$150,000
(25,000)
(54,000)
(18,000)
(45,000)
Owners
Equity
$ 23,000
5,000
(15,000)
4,500
(9,000)
(12,000)
(25,000)
(50,000)
$448,000
$163,000
$125,000 $54,000
827
14,000
15,000
$179,000
$ 66,500
410,000
$476,500
342,000
$134,500
(15,000)
$ (6,500)
Ch. 21Problems
PROBLEMS
Note: Some calculations may vary due to rounding or method of calculation. Answers presented
have been determined using Excel.
PROBLEM 21-1
Atoyo Fabricating, Inc.
Evaluation of Proposed Plan of Reorganization
Liability
Note
Accounts payable.............
Accounts payable.............
Accounts payable.............
Equipment note ................
Shareholder note..............
Mortgage payable ............
Other creditors .................
Type of Claim
Book Value
Consideration
Suggested
to Be Received if a
Monthly
Liquidation Reorganization
Payment
Fully secured
Partially secured
Unsecured
Partially secured
Partially secured
Fully secured
Unsecured
40,000
74,000
20,000
338,000
20,000
448,000
160,000
$1,100,000
40,000
66,815
14,868
334,664
18,717
448,000
118,944
$1,042,008*
40,000
58,820
14,560
338,000
22,460
448,000
130,838
$1,052,678
$13,601
20,000
3,000
9,732
6,482
4,266
17,099
$74,180
Note A: The payment is based on a present value of $40,000, a period of three months, and an
interest rate of 1% per month.
Note B: The present value of the three payments of $20,000 at a monthly interest rate of 1% is
$58,820. The amount to be received if a liquidation is the $46,000 plus the remaining unsecured
amount of $28,000 times 74.34%.
Note C: The present value of the five payments of $3,000 at a monthly interest rate of 1% is
$14,560. The amount to be received upon liquidation is $20,000 times 74.34%.
Note D: The payment that would be the lowest is one based on a present value of $338,000, a
term of 42 months, and an interest rate of 11%. The payment would be $9,732. The amount to
be received upon liquidation is $325,000 plus 74.34% of the unsecured portion of $13,000.
Note E: In addition to the $15,000 secured amount, the shareholder would have received
74.34% of the remaining $5,000, or $3,717, for a total of $18,717. The payments to equal 120%
of this amount ($22,460), given a term of four semiannual periods and an interest rate of 12%,
would be $6,482.
Note F: The payment is based on a present value of $448,000, a period of 360 months, and an
interest rate of 11%.
Note G: The unsecured creditors would have received 74.34% as a dividend, or $118,944.
110% of this amount would be equal to $130,838. The payments necessary to equal this present value, given eight monthly periods and an interest rate of 12%, is $17,099.
828
See
A
B
C
D
E
F
G
Ch. 21Problems
Assets at Net
Realizable
Value
$1,042,000
Fully
Secured
$ 488,000
(488,000)
(386,000)
$ 168,000
Liabilities
Partially
Secured Unsecured
$432,000
$180,000
(488,000)
(386,000)*
(46,000)
46,000
$
0
$226,000
PROBLEM 21-2
(a) Cash ...............................................................................................
Accumulated Amortization..............................................................
Loss on Sale of Patents..................................................................
Patents......................................................................................
To record the sale of patents.
20,000
115,000
5,000
100,000
185,000
10,000
15,000
230,000
15,000
829
140,000
100,000
210,000
185,000
60,000
Ch. 21Problems
150,000
4,500
85,000
(f)
124,500
30,000
15,000
60,000
10,000
Bank Debt.......................................................................................
Accrued Interest Payable ...............................................................
Investment Securities ...............................................................
Treasury Stock..........................................................................
Contributed Capital from Treasury Stock..................................
Restructured Bank Debt ...........................................................
Gain on Restructuring...............................................................
To record restructuring of bank debt.
510,000
22,000
60,000
120,000
150,000
830
62,000
150,000
50,000
252,000
18,000
51,000
9,000
220,000
10,000
40,000
Ch. 21Problems
Original
Balance
$245,000
154,500
85,000
532,000
60,000
120,000
Unpaid
Balance
$
0
124,500
60,000
252,000
51,000
40,000
Reduction
in Balance
$245,000
30,000
25,000
280,000
9,000
80,000
Quarterly
Interest
Rate
0.00%
1.50
0.00
1.60
0.00
1.40
831
Unpaid
Balance
$
0
124,500
60,000
252,000
51,000
40,000
Interest
$
0
1,867.50
0
4,032.00
0
560.00
Quarterly
Payment
$
0
8,810.25
10,000.00
27,470.38
17,000.00
6,997.12
Implicit
Number Quarterly
of
Interest
Payments
Rate
0
0.00%
16
1.50
6
0.00
10
1.60
3
0.00
6
1.40
Ch. 21Problems
PROBLEM 21-3
(1)
Original
December 31, 2017
Dr. (Cr.)
Debit
Cash...................................... $ (15,000)
Accounts receivable (net)......
500,000
(a)
Inventory ...............................
150,000
(a)
Plant and equipment (net).....
1,560,000
(b)
Goodwill ................................
150,000
(b)
Other assets:
Current portion ................
6,209 (c) $
1,616
Noncurrent portion ..........
28,791
(c)
Accounts payable..................
(320,000)
7% Note payable:
Current portion ................
0
(d)
Noncurrent portion ..........
(1,500,000) (d)
300,000
Common stock at par ............
(550,000) (e) 1,000,000 (e)
Contributed capital in excess
of par ...............................
(550,000) (e)
550,000 0
Retained earnings .................
300,000
(e)
2017 Net income ...................
240,000
(e)
Impairment loss.....................
(a)
95,000
Impairment loss.....................
(b)
425,000
(d)
(e)
Total ................................ $
0
$2,371,616
Adjusted
December 31, 2017
Credit
Dr. (Cr.)
$ (15,000)
$ 75,000
425,000
20,000
130,000
275,000
1,285,000
150,000
0
7,825
27,175
(320,000)
1,616
240,000
550,000
(240,000)
(1,200,000)
(100,000)
300,000
240,000
60,000
460,000
$2,371,616
0
0
Before Actions
After Actions
2.00
3.25
0.98
NA*
*The debt-to-equity ratio is not meaningful in that there is negative equity. The adjusted assets total $1,475,000, and the adjusted debt totals $1,760,000. All assets are being financed by debt capital.
832
Ch. 21Problems
PROBLEM 21-4
Carlton Company
Statement of Affairs
April 30, 2015
Book
Value
$ 82,500
10,000
40,000
25,000
20,000
3,750
11,250
14,000
57,250
Assets
Assets pledged with partially secured creditors:
Land and building (net)..............................
Notes receivable........................................
Equipment (net) .........................................
U.S. Treasury bonds..................................
Free assets:
Subscriptions receivable............................
Groves common stock...............................
Cash ..........................................................
Accounts receivable ..................................
Inventory (see Schedule A) .......................
Estimated
Net
Realizable
Value
$ 75,000
0
12,000
23,200
20,000
3,300
11,250
3,000
52,175
$263,750*
Estimated
Amount
Available for
Unsecured
Creditors
Estimated
Gain (or
Loss) on
Liquidation
$ (7,500)
(10,000)
(28,000)
(1,800)
$ 20,000
3,300
11,250
3,000
52,175
(450)
(11,000)
(5,075)
$ 89,725
(7,300)
$ 82,425
$199,925
52,375
$134,800
$(63,825)
*The total represents the original $250,250 plus the notes receivable of $10,000 plus the additional labor costs on work in process of $3,500.
833
Ch. 21Problems
Book
Value
$ 87,500
10,000
62,500
25,000
6,150
1,150
$ 75,000
0
12,000
23,200
$ 12,500
10,000
50,500
1,800
$6,150
1,150
Estimated
Unsecured Amount
With
Without
Priority
Priority
Estimated
Secured
Amount
$110,200
$7,300
60,000
$134,800
Owners equity
Total liabilities and owners equity
**$2,650 + $3,500
***The total represents the original $238,800 plus the notes receivable discounted of $10,000
plus the unpaid labor costs on work in process of $3,500.
Schedule A
Realization of Inventory
March 31
Book
Value
$15,000
11,250
27,500
$53,750
Additional
Costs
(Transfers)
$(3,000)
3,000
3,500
$ 3,500
Revised
Book
Value
$12,000
Net
Realizable
Value
$ 2,400
17,750
27,500
$57,250
19,525
30,250
$ 52,175
This amount represents additional labor costs that are unsecured with priority.
834
Ch. 21Problems
PROBLEM 21-5
(a) Note PayableOfficer....................................................................
Patents (net) .............................................................................
Gain on Patents ........................................................................
To record transfer of patents against note.
230,000
100,000
210,000
20,000
100,000
220,000
20,000
50,000
240,000
50,000
33,327
23,178
95,770
55,000
45,075
252,350
200,000
100,000
100,000
835
700,000
80,000
280,000
15,000
100,000
100,000
200,000
Ch. 21Problems
Note payableofficer.......
Mortgage payable ............
Bank A note payable ........
Bank B note payable ........
Original
Balance
$ 400,000
1,500,000
2,100,000
820,000
Reduction
in Balance
$ 230,000
100,000
1,075,000
270,000
Note payableofficer.......
Mortgage payable ............
Bank A note payable ........
Bank B note payable ........
Unpaid
Balance
$ 170,000
1,400,000
1,025,000
550,000
Quarterly
Interest
Rate
1.00%
2.00
1.50
0.00
836
Unpaid
Balance
$ 170,000
1,400,000
1,025,000
550,000
Payment
$ 35,026.77
51,178.05
111,145.03
55,000.00
$252,349.85
Quarterly
Payment
$ 35,026.77
51,178.05
111,145.03
55,000.00
Interest
$ 1,700
28,000
15,375
$45,075
Implicit
Number Quarterly
of
Interest
Payments
Rate
5
1.00%
40
2.00
10
1.50
10
0.00
Principal
$ 33,327
23,178
95,770
55,000
$207,275
Ch. 21Problems
PROBLEM 21-6
St. John Corporation
Statement of Realization and Liquidation
For the Period January 1, 2016, to June 30, 2016
Liabilities
Assets
Cash
Noncash
Fully
Secured
Partially
Secured
Unsecured
With
Without Shareholders
Priority
Priority
Equity
15,000
20,000
480,000
700,000
250,000
360,000
100,000
150,000
(430,000)
(800,000)
(210,000)
(300,000)
(130,000)
(150,000)
Cash disbursements:
Inventory completion costs ..... (25,000)
Payment of accounts
payable ................................ (400,000)
(400,000)
Payment of accounts
payable ................................
Payment of brokers fee .......... (10,000)
Payment to Bank A ................. (940,000)
(940,000)
Payment of other liabilities...... (110,000)
(90,000)
(20,000)
Payment of administrative
expenses ............................. (10,000)
(10,000)
Ending balances......................... $ 602,000 $3,890,000 $2,320,000 $1,880,000 $ 25,000 $187,000
837
$100,000
$100,000
15,000
(20,000)
50,000
(100,000)
40,000
60,000
(30,000)
(25,000)
(10,000)
$ 80,000
Ch. 21Problems
PROBLEM 21-7
Trial Balance as of
March 31
Debit
Credit
Cash and cash equivalents .....................
847,000
Inventory..................................................
1,100,000
Equipment (net).......................................
Other assets............................................
Accounts payable....................................
325,000
110,000
Second Quarter
Activities/Adjustments
Debit
Credit
46,000
600,000
550,000
125,000
Restructured note....................................
Shareholders' equity................................
Net sales .................................................
Cost of sales ...........................................
Selling, general, and administrative ........
700,000
385,000
Interest expense......................................
17,250
480,000
762,300
A1
120,000
C1
1,530,000
A1 $
B1
230,000
C2
D1
D2
E1
E2
F1
800,000
135,000
360,000
600,000
27,541
550,000
E1
G1
D3
6,000
15,000
46,458
219,750
853,000
A3
A2
B2
D3
E2
C2
D3
E2
B1
A2
B2
A3
D1
E1
C1
60,000
230,000
E1
444,036
F1
465,651
D2
G1
A1
360,000
14,704
600,000
838
$4,660,477
$ 314,358
204,700
$
10,235
700,000
325,000
50,000
465,000
416,495
465,651
104,000
313,542
205,046
1,453,000
1,210,000
395,235
25,193
D1
E1
F1
G1
E1
$3,704,000
800,000
49,942
32,000
762,300
6,000
4,235
510,000
120,000
510,000
6,000
4,235
3,484
4,459
Gain on restructuring...............................
$3,704,000
Trial Balance as of
June 30
Debit
Credit
15,000
45,964
84,349
296
56,000
$4,660,477
145,609
56,000
$3,429,532 $3,429,532
Ch. 21Problems
Payment
May
June
$24,971.17
24,971.17
$49,942.34
Interest @ 6%
$ 1,800.00
1,684.14
$ 3,484.14
Principal
$23,171.17
23,287.03
$46,458.20
Balance
$360,000.00
336,828.83
313,541.80
E1
The net present value of the 30 payments is $444,036. This present value along with the vacant lot valued at $116,000 consists of $$560,036
of value being paid against a debt of $606,000. This results in a restructuring gain of $45,964.
E2
F1
Month
Payment
May
June
$16,000.00
16,000.00
$32,000.00
$13,735.42
13,805.47
$27,540.89
Balance
$444,036.00
430,300.58
416,495.12
The net present value of the 48 payments of $11,000 based on a market interest rate of 6.3% is $465,651. Given the note balance of
$550,000, this results in a restructuring gain of $84,349.
839