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  • I Years Amount Compoundin G Per Year: 3,756,574.00 1,740,796.39 #DIV/0! #DIV/0!

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    This document compares the accounting treatment for a loan modification with and without substantial modification. When there is a substantial modification, where the interest rate increases from 10% to 14%, the new carrying amount is $6 million with $1.6 million in total interest expense. Without substantial modification, where the interest rate only increases to 6.46%, the new carrying amount is still $6 million but with only $1.1 million in total interest expense and no gain or loss.

    Original Description:

    Intermediate Acctg 2

    Original Title

    Debt Structure

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    This document compares the accounting treatment for a loan modification with and without substantial modification. When there is a substantial modification, where the interest rate increases from 10% to 14%, the new carrying amount is $6 million with $1.6 million in total interest expense. Without substantial modification, where the interest rate only increases to 6.46%, the new carrying amount is still $6 million but with only $1.1 million in total interest expense and no gain or loss.

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    © All Rights Reserved
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    5 views4 pages

    I Years Amount Compoundin G Per Year: 3,756,574.00 1,740,796.39 #DIV/0! #DIV/0!

    Uploaded by

    hmmmmn
    This document compares the accounting treatment for a loan modification with and without substantial modification. When there is a substantial modification, where the interest rate increases from 10% to 14%, the new carrying amount is $6 million with $1.6 million in total interest expense. Without substantial modification, where the interest rate only increases to 6.46%, the new carrying amount is still $6 million but with only $1.1 million in total interest expense and no gain or loss.

    Copyright:

    © All Rights Reserved
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    of 4

    With substantial modification

    compoundin
    i years amount
    g per year
    PV
    1 10.00% 3 1 5,000,000.00 3,756,574.00
    annuity 10.00% 3 1 700,000.00 1,740,796.39
    fv
    1 #DIV/0!
    annuity #DIV/0!

    Old % 10%
    New % 14%
    New term 3

    CA 5,000,000.00 6,000,000.00
    Accrued intere 1,000,000.00 5,497,370.40
    DTC 502,629.60
    6,000,000.00
    8%

    Toal interest expense: 1,602,629.60


    Less: gain (loss) - 502,629.60
    Net effect in RE 1,100,000.08

    No substantial modification

    compoundin
    i years amount
    g per year
    PV
    1 6.46% 3 1 5,000,000.00 4,144,496.83
    annuity 6.46% 3 1 700,000.00 1,855,467.76
    fv
    1 #DIV/0!
    annuity #DIV/0!

    Interpolated 6.46%
    New % 14%
    New term 3

    CA 5,000,000.00 6,000,000.00
    Accrued intere 1,000,000.00 5,999,964.59
    DTC 35.41
    6,000,000.00
    0%

    Toal interest expense: 1,100,000.00


    Less: gain (loss) 35.41
    Net effect in RE 1,100,035.41
    Note: if w/ substantial modification, this must be more than 10%. However, mag assume lang ta na this is w/
    substantial modification for purposes lang of contrasting the two computations.

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