Restructuring Debt Essay Example for Free

Restructuring Debt Essay genius appreciates the recommendation of providing information on restructuring debt to help the society combat its young financial troubles. Even though the go with is in the process of reorganizing hotshot believes this information will help a comp some(prenominal) in pass overing the restructuring of debt. One will endure information on the requirements of reporting debt on coalitions, notes, and jacket leases. In performing this one will to a fault provide the journal entries one would need to record to restructure the companys debt on 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 atomic number 18 present obligations that consist of probable future sacrifices of stinting benefit, which ar not collectable within a year or within the operating cycle of the company (Kieso, Weygan dt, Warfield, 2007, p. 672). Generally long-term debt consists of three categories, which are bonds due, notes collectible, and crown leases.In financial reporting one of the most controversial areas is the reporting of long-term debt beca physical exertion this debt impacts the cash flows of a company (Kieso, Weygandt, Warfield, 2007, p. 691). The reporting requirements of the debt must be both substantive and informative to the investor. Some long-term debt such as bonds, notes, and others may need approval by the board of directors and stockholders before a company acquires the debt. Most long-term debt a company acquires has certain ovenants or restrictions within its agreement. This helps protect both the lender and borrower. A company must disclose the features along with any covenants 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 esta blished understanding of the financial position of the company and the results of its 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 periodic interest on the maturity amount. Bonds can be either secured or unsecured. Secured bonds have some pledge of collateral that backs up the bond. An example of this type of bonds is a mortgage bond secured by a title on real estate (Kieso, Weygandt, Warfield, 2007, p. 673). Unsecured bonds are bonds that do not have any collateral attach to them. Most bonds carry a ad hoc rate of interest whereas others are sold with an implied interest rate at a discount.One can convert some bonds into other securities. No issuing 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 on the covenant or restrictions of the bond. In reporting bonds a company must report the bond at its heart 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 bountifulness of a bond over the manner of the bond.This basically is reporting the bond at its face value less the unamortized discount or plus the unamortized premium. General Accepted Accounting Principles (GAAP) requires a company to use the effective- interest system 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 similar and different from bonds in some ways.The similarity is notes payable also have fixed matu rity dates and carry either a stated or implicit interest rate (Kieso, Weygandt, Warfield, 2007, p. 685). The difference 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 face 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 have 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 report s 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.