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Acct Case Study

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Does the Restructuring of Resort Co.’s Original Debt represent a troubled debt restructuring?

The restructuring of the debt should be accounted for as a troubled debt restructuring based on the following:
To determine if troubled debt restructuring applies, both of the following conditions must be present:
1. The company must be experiencing financial difficulty
2. Creditor must grant concessions
ASC 470-60-55-8 provides relevant implementation guidance in determining whether or not debtor is experiencing financial difficulties.
55-8 All of the following factors are indicators that the debtor is experiencing financial difficulties:
a. The debtor is currently in default on any of its debt.
b. The debtor has declared or is in the process of declaring bankruptcy.
c. There is significant doubt as to whether the debtor will continue to be a going concern.
d. Currently, the debtor has securities that have been delisted, are in the process of being delisted, or are under the threat of being delisted from an exchange
e. Based on estimates and projections that only encompass the current business capabilities, the debtor forecasts that its entity-specific cash flows will be insufficient to service the debt (both interest and principal) in accordance with the contractual terms of the existing agreement through maturity.
f. Absent the current modification, the debtor cannot obtain funds from the sources other than the existing creditors at an effective interest rate equal to the current market interest rate for similar debt for a nontroubled debtor.

According to the study Resort Co. appears to be in violation of A. The company defaulted on a debt instrument with Bank C which resulted in a cross default with the original debt with Bank A and Bank B.
ASC 470-60-15-5, 6, 9 provide relevant implementation guidance in whether or not the creditor grants a…...

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