Restructuring Debt Data
July 18, 2011
Restructuring Debt Data
Understanding the reporting and disclosure requirements for the different types of debt regarding debt restructuring is imperative. The manager of this company has requested an explanation of the above regarding bonds payable, notes payable, and capital leases. This paper should satisfy any questions about these topics.
Included are several types of long-term liabilities; bonds payable, notes payable, and capital leases. Each of these types of debts have some similarities and some differences regarding the reporting and disclosure requirements, so to better understand those requirements and ...view middle of the document...
According to Kieso et al., (2007), like a bond, a note payable is valued as the present value of its future interest and principal cash flows. Amortization of any premium or discount should be over the life of the note.
Mortgage Notes Payable
According to Kieso et al., mortgage notes payable should be reported on the balance sheet as a liability. A brief disclosure of the property pledged should be included in the notes. If the liability is payable at maturity, the liability should be classified as a current liability as the time approaches and if the liability is payable in installments, the current installments are a current liability with the remainder of the balance as a long-term liability.
For the lessor, the Financial Accounting Standards Board (FASB) recognizes three types of capital leases; the sales-type lease, direct financing lease, and the leveraged lease. For the lessor, disclosure requirements include the general nature of the leasing arrangements, the total future minimum lease payments receivable with separate deductions for executor costs and uncollectibles, unguaranteed residual values accruing to the government, minimum lease receipts for each of the five succeeding years, any unearned income offset against initial direct costs, and total contingent rentals of the period. (Griffin-Valade, 2011) For the lessee, disclosure requirements include a description of the general leasing arrangements, the gross amount of assets recorded under capital leases presented by major asset class, and the total amount of accumulated depreciation. In addition, a separate identification of related obligations as capital lease obligations in the balance sheet with classification as current or non-current as appropriate is required. Additionally, disclosure of the minimum future lease payments in total and for each of the next five years, presenting a deduction for imputed interest to reduce the net minimum future lease payments to their present value should be included (Griffin-Valade, 2011).
Companies should record capital leases at the present value of the periodic lease payments discounted at the lessee’s cost of capital or...