Rest EZ Hotels, Inc., [REZ] owns and runs several well established and trendy hotels in well established tourist cities across the country.  A few years ago, it bought out a motel chain, Kum-N-Go, for $21,600,000.  The acquisition deal had been financed with a loan from its bankers, First Rodent Banking Co., [FRB].  FRB had issued a 10-year 12% note at par to REZ for this amount.  The acquisition had proved to be quite profitable overall till recently, when the ongoing worldwide pandemic conditions wrecked havoc and the total hotel reservations declined drastically industrywide.  This in turn created a significant cash flow crisis for the company.  The loan was coming due on December 31, 2020 and, REZ sought major concessions from its creditor towards settling this debt.  

REZ which further owes FRB $2,592,000 for past accrued interest costs, asked the Bank to also cancel this debt element as well. The two parties finally agreed to terms in a final settlement plan which both felt were fair and feasible.  Effective January 1, 2021, REZ was to pay a cash amount of $3,150,000 on that date and accept a 6% 6-year note for $21,000,000 in exchange for the cancellation of the existing note payable and the outstanding interest.  The revised note was issued at the current market rate of 8% with interest payable annually on December 31.  Both parties have adopted IFRS.

1) 

By comparing a value of the renegotiated debt plus payments made with the amount of the obligation forgiven, the determination of whether this re-financing is to be considered a major settlement or minor modification restructure can be made. These amounts, as calculated respectively, will be [Renegotiated Debt: $; Existing Obligation Forgiven: $].

Select one:

a. $18,969,606; and $24,192,000

b. $21,754,053; $24,192,000

c. $24,150,000; and $21,600,000

d. $17,346,225; and $24,192,000

e. None of the above

2) For this Question, assume that the renegotiated terms resulted in a settlement.  REZ and FRB will record the new note in their respective books of accounts with amounts as follows [REZ:  $;   FRB:  $]

a. REZ:  $21,000,000;  FRB:  $21,000,000

b. REZ: $19,058,400;  FRB:   $15,819,606

c. REZ:  $21,754,062;  FRB:   $21,754,062

d. REZ:  $21,000,000;  FRB:   $21,600,000

e. None of the above answers.

 

3) 

For this Question, assume that the renegotiated terms resulted in a settlement.  REZ and FRB will record in their respective books of accounts on January 1, 2021, as follows  [REZ:  $ Loss or Gain;   FRB:  $Loss or Gain]

a. REZ:  NO LOSS or GAIN, $0;  FRB:  NO LOSS or GAIN, $0

b. REZ:  GAIN, $600,000;  FRB:  LOSS , $600,000

c. REZ:  GAIN, $754,062;  FRB:  LOSS , $754,062

d. REZ:  GAIN, $1,983,600;  FRB:  LOSS , $5,222,394

e. None of the above answers.

 

4) 

Now assume for this question only that REZ further owed another debt of $1,800,000 to FRB.  This loan was separate from the one specified in [33] above.  The loan along with accrued interest of $144,000 was coming due on July 1, 2021.  The Bank, noting the ongoing financial difficulties of its client, decides to accept from REZ an offer to settle this loan only with an exchange of property that has a fair value of $1,740,000.  REZ had acquired this property at a cost of  $2,880,000, and its net book value on July 1 amounted to $1,500,000.  In return, FRB agrees to forgive the loan owed to it.  Further, all interest upto July 1 accruing on this debt was paid off by REZ before the settlement.

REZ while recording this debt settlement in its books of accounts on July 31, 2021, will be recording in the entry the following  [$ - Loss Or Gain On Transfer Of Property;   $ - Loss Or Gain On The Settlement Of The Loan].  Determine the amounts so recorded for these two variables.

a. $60,000 - Gain On Transfer Of Property;   $24,000 - Gain On The Settlement Of The Loan.

b. $0 - ZERO Loss Or Gain On Transfer Of Property;    $84,000 - Gain On The Settlement Of The Loan.

c. $60,000 - Gain On Transfer Of Property;   $15,000 - Loss On The Settlement Of The Loan. 

d. $285,000 - Loss On Transfer Of Property;  $15,000 - Gain On The Settlement Of The Loan.

e. None of the above answers.

Answer rating: 100% (QA)

1 Option B is correct b 21754053 24192000 A renegotiated loan is a loan such as a home mortgage that has been modified by the lender prior to its full ... View the full answer