To: Finance Accounting Manager, XYZ Company
Re: Restructuring Debt
XYZ Company is experiencing some financial trouble and management is asking that a memo be prepared to entail important disclosures when dealing with long term debt. According to Kiesco, long-term debt consists of probable future sacrifices of economic benefits arising from present obligations that are not payable within a year or the operating cycle of the company, whichever is longer (2007, p.672). There are three types of long term debt and different requirements for reporting each debt. Per corporation’s bylaws, the company must get approval from the board of directors as well as stockholders ...view middle of the document...
The company amortizes discounts or premiums over the life of the bond or note. Also, both have fixed maturity dates and carry either a stated or implicit interest rate. Noncorporate and small corporate enterprises use notes as long-term instruments. Notes do not trade as readily as bonds in public markets. The stated rate is expressed as a percentage of the face value.
In order for a lease to be considered a capital lease it has to be unconcealable. According to McIntosh,
To qualify as a capital lease, the lease must transfer ownership to the lessee, include a bargain purchase option, extend beyond 75 percent of the asset's useful life or have a present value greater than or equal to 90 percent of the asset's fair market value. At the initiation of the lease, the lessee records a debit to the Fixed Asset account and a credit to Lease Obligation. Throughout the life of the lease agreement, the lessee records depreciation expense by debiting Depreciation Expense and crediting Accumulated Depreciation. The company records every lease payment by debiting Lease Obligation and Interest Expense and crediting Cash.
Charges under the capital lease are higher in the beginning and lower...