Restructuring Debt Essay Example for Free

Restructuring Debt EssayOne appreciates the recommendation of providing information on restructuring debt to divine service the familiarity combat its fresh financial troubles. Even though the connection is in the process of reorganizing unmatched believes this information will help a familiarity in heraldage the restructuring of debt. One will provide information on the requirements of reporting debt on bonds, notes, and superior leases. In performing this bingle will also provide the journal entries one would need to volume to restructure the companys debt along with a comparison of the debt for the companys current reporting. One will also provide valuable information on the companys postemployment benefits. Requirements for Reporting Debt Long-term debts for a company ar present obligations that consist of probable future sacrifices of sparing benefit, which are not collectable within a year or within the operating oscillation of the company (Kieso, Weygandt, Warfield, 2007, p. 672). Generally long-term debt consists of three categories, which are bonds payable, notes payable, and capital leases.In financial reporting one of the most controversial areas is the reporting of long-term debt beca workout this debt impacts the cash flows of a company (Kieso, Weygandt, Warfield, 2007, p. 691). The reporting requirements of the debt mustiness be both substantive and informative to the investor. Some long-term debt such as bonds, notes, and others may need cheering by the board of directors and stockholders before a company acquires the debt. Most long-term debt a company acquires has certain(p) ovenants or restrictions within its agreement. This helps protect both the lender and borrower. A company must disclose the features along with any promises or restrictions in the agreement of long-term debt in the financial statements or in the notes of the financial statements. This is only if the information provides an investor a more complete un derstanding of the financial position of the company and the results of its trading operations (Kieso, Weygandt, Warfield, 2007, p. 672).Bonds PayableBonds basically represent a contract of a promise to pay at a maturity date a sum of money plus a specified rate of oscillating wager on the maturity gist. Bonds can be either secured or unsecured. Secured bonds have some sureness of verificatory that backs up the bond. An example of this type of bonds is a mortgage bond secured by a hold on real estate (Kieso, Weygandt, Warfield, 2007, p. 673). Unsecured bonds are bonds that do not have any collateral attach to them. Most bonds exculpate a specific rate of occupy whereas others are sold with an implied interest rate at a discount.One can convert some bonds into other securities. No proposition what bond a company acquires the terms and conditions of the bond must be disclosed along with the covenants or restrictions on the bond. A company must also disclose any violation o n the covenant or restrictions of the bond. In reporting bonds a company must report the bond at its look value of its expected future cash flows, which consists of interest and principal (Kieso, Weygandt, Warfield, 2007, p. 675). The company amortizes any discount or reward of a bond over the life of the bond.This basically is reporting the bond at its flavor value less the unamortized discount or plus the unamortized bonus. General Accepted Accounting Principles (GAAP) requires a company to use the effective- interest method in determining the amortization of a discount or premium of a bond. A company reports the portion of the bond that matures within a year (current portion) as a current liability, and the remainder as a long-term liability on the balance sheet. Notes Payable Notes payable are generally an amount of money a company borrows with a romissory note. Long-term notes are uniform and different from bonds in some ways.The similarity is notes payable also have fixe d maturity dates and carry either a stated or implicit interest rate (Kieso, Weygandt, Warfield, 2007, p. 685). The going is notes payable are not easily tradable. A company reports notes payable in a similar fashion as it does bonds. In reporting a note payable a company records the note at its manifestation value of its future interest and principal cash flows. The company amortizes any discount or premium of a note over its life.If a note has no-bearing interest rate the company should report the difference between the face value and the cash received as a discount on the note. This amount one amortizes over the life of the note to interest expense. Capital Leases A company may use capital leases to finance its acquisition of capital assets. In lease financing a company must met the criteria of the Financial Accounting Standards Board (FASB) on capital leases. In this a company must record both a liability, and a related asset on its balance sheet. In reporting capital lease a company reports the lease at its present value of the minimum lease payments.The company allocates these lease payments using the effective interest method to interest expense. This allocation using the effective interest method reduces the lease liability of the company. A company regardless of the type of liability it has must report the interest rate, maturity date, current interest expense, and future interest and principles payments of the liability in its financial statements or notes. A company should also disclose any restrictions or covenants on these liabilities. In disclosing this debt a company should present the debt by major category.