Under a troubled debt restructuring that results in a modification of terms the debtor will report interest expense when
A) The debtor reports a gain on restructuring.
B) The future cash flows under the restructuring agreement are less than the company's obligation at the date the restructuring takes place.
C) Always because the troubled debtor has a new agreement that obligates the company to make payments in the future.
D) The debtor reports no gain on restructuring.

Question

Quizplus · Accepted Answer

Under a troubled debt restructuring that results in a modification of terms, the debtor will report interest expense only if the debtor reports no gain on restructuring. If the debtor reports a gain on restructuring, the interest expense will be reduced accordingly. If the future cash flows under the restructuring agreement are less than the company's obligation at the date the restructuring takes place, the debtor will report a loss on restructuring, not interest expense. While it is true that the troubled debtor has a new agreement that obligates the company to make payments in the future, interest expense is only recognized if there is no gain recorded on the restructuring.

Under a Troubled Debt Restructuring That Results in a Modification