Cutler Manufacturing manufactures and distributes specialty piping used in the construction industry. Due to the recent contraction in the commercial construction market, the company has had difficulty servicing its outstanding debt. In particular, debt bearing interest at a stated rate of 6% with 42 remaining payments of $15,000 per month is being considered for restructuring. In spite of this difficulty, the company is not deemed to experiencing financial difficulties such that it would qualify for a troubled debt restructuring. The creditor and the company have identified several alternatives as follows: a. Convey vacant land with a fair market value of $380,000 and a book value of $260,000 to the creditor along with a commitment to make 40 monthly payments of $5,067.60 each. b. Convey vacant land with a fair market value of $380,000 and a book value of $260,000 to the creditor along with a commitment to make 60 monthly payments of $3,000 each. The new debt has a fair value of $160,000. For each of the above restructuring alternatives, determine the impact on the company’s income statement for the first two months of the restructuring period.
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Cutler Manufacturing manufactures and distributes specialty piping used in the construction industry. Due to the recent contraction in the commercial construction market, the company has had difficulty servicing its outstanding debt. In particular, debt bearing interest at a stated rate of 6% with 42 remaining payments of $15,000 per month is being considered for restructuring. In spite of this difficulty, the company is not deemed to experiencing financial difficulties such that it would qualify for a troubled debt restructuring. The creditor and the company have identified several alternatives as follows:
a. Convey vacant land with a fair market value of $380,000 and a book value of $260,000 to the creditor along with a commitment to make 40 monthly payments of $5,067.60 each.
b. Convey vacant land with a fair market value of $380,000 and a book value of $260,000 to the creditor along with a commitment to make 60 monthly payments of $3,000 each. The new debt has a fair value of $160,000.
For each of the above restructuring alternatives, determine the impact on the company’s income statement for the first two months of the restructuring period.
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