BDO KNOWS: - Troubled Debt Restructuring, Debt Modification and

BACKGROUND AND PURPOSE

Companies frequently fund their operations in part using debt and may renegotiate

their debt for a variety of reasons from increasing borrowings to ﬁnance an expansion

of their operations to managing cash ﬂow difﬁculties. The debtor and creditor may

agree to modify the current loan agreement (or debt instrument) or to exchange one

loan agreement (or debt instrument) for another. The accounting guidance applicable

to accounting for the restructuring of obligations does not distinguish between a loan

agreement, a payable, and a debt instrument and we will use the term “loan” and

“debt” interchangeably in this practice aid. This practice aid discusses the accounting

for restructured debt from the perspective of the debtor. The document is intended

to be used by practitioners of all experience levels. The examples are highlighted in

gray. Users interested in only the accounting standards and interpretive guidance can

pass over the highlighted areas of the Practice Aid. The examples within the body of

the Practice Aid are simple and designed to explain the concepts. Appendix A provides

complex examples designed for users who understand the basics of debt modiﬁcation.

The debtor’s accounting for the restructured loan depends on the facts and

circumstances surrounding the changes to the loan. The appropriate accounting model

depends on whether (a) there is a change in lender, (b) the transaction is considered to

be a troubled debt restructuring, and (c) the loan agreement has substantially changed.

The accounting literature does not distinguish a modiﬁcation of a loan agreement

from an exchange of loan agreements between the same debtor and creditor. If the

debtor pays off the creditor of the original loan with proceeds from a new lender, then

the debtor company should report the original loan as extinguished. If the debtor

restructures the loan with the original creditor, then the debtor should ﬁrst consider

troubled debt restructuring accounting. If troubled debt accounting is inapplicable,

then the debtor should determine whether the loan is substantially changed. If the

restructured loan is not substantially changed from the original loan, the loan is

considered to be modiﬁed. If the restructured loan is substantially changed from the

original loan, the original loan is considered to be extinguished and the restructured

loan is treated as a new borrowing.

CONTENTS

Background and Purpose 1

Step A: Does the Debt

Restructuring Fall Within

the Scope of ASC 470-60,

Troubled Debt Restructuring? 5

Step B: Has the Term Debt

Been Modiﬁed or Extinguished

under ASC 470-50,

Debt Modiﬁcations

and Extinguishments? 12

Step C: Has the Revolving

Debt or Line-of-credit Been

Modiﬁed or Exchanged? 42

Analyze Loan Modiﬁcations

and Changes in Loan Form

in a Bank Syndicate –

LOCS and Term Loans 43

Appendix A 53

BDO KNOWS:

Troubled Debt Restructuring,

Debt Modiﬁcation and Extinguishment

If a company and its creditor are

related parties, then any debt

extinguishment resulting in a gain likely

is a capital transaction, the effects

for which are not reported in the

statement of operations.

This Practice Aid provides the tests

to determine the applicable model

for accounting for a loan that is

restructured with the same lender.

The ﬂowcharts in the Practice Aid

summarize these tests. Depending

on the results of the tests, the

debtor may have to account for the

restructured debt by:

 Troubled debt restructuring –

Changing the amount

of interest expense recognized

in the statement of operations

prospectively or recognizing a gain

in the statement of operations

using the basic extinguishment

model (see below).

 Modiﬁcation or extinguishment –

Modifying the effective

interest expense recognized in

the statement of operations

prospectively or derecognizing the

carrying amount of the original

loan using the basic extinguishment

model (see below).

1 See Sagar S. Teotia, Remarks before the 2010 AICPA National Conference on Current SEC and PCAOB Developments, “Debt Extinguishment – Related Party,”

for a discussion of extinguishment transactions between related parties in which gains result in capital transactions.

THE BASIC EXTINGUISHMENT MODEL

The extinguishment model for troubled debt restructurings and other

extinguishments is outlined in ASC Subtopic 470-50, Debt Modiﬁcations and

Extinguishments, and ASC Subtopic 470-60, Troubled Debt Restructurings

by Debtors. The model requires that whenever an existing debt obligation

is extinguished, the debtor should recognize a gain or loss in the statement

of operations for the difference between the reacquisition price and the net

carrying amount of the extinguished debt. Key deﬁnitions are:

 Reacquisition price – The amount paid on extinguishment (e.g., the fair

value of the securities issued, fair value of assets transferred, cash paid) and

miscellaneous costs of reacquisition. If a company extinguishes debt early

through issuance of common or preferred stock or the transfer of assets,

the company should determine the reacquisition price of the debt by the

fair value of (a) the stock issued, (b) the assets transferred, or (c) the debt,

whichever is more clearly evident. In a partial pay down of the debt, the

company should record the paydown using the fair value of the stock issued

or the assets transferred.

 Net carrying amount – The face amount of the old debt, minus/plus

unamortized discount/premium (fees paid to/received from the creditor),

minus unamortized debt issue costs (fees paid to third parties), plus any

accrued interest.

 Effective interest rate – The discount rate that equates the present value

of all future cash payments with the net carrying amount of the debt and

provides a constant return over the life of the debt.

 Debt discount or premium – Debt discounts are any fees paid by the debtor

to the creditor and premiums are any fees paid by the creditor to the debtor.

For example, if the debt has a discount, a company borrows less than the

face amount of the debt and pays a higher rate of interest than the stated

interest rate. If the debt has a premium, the company borrows more than

the face amount of the debt and pays a lower rate of interest than the stated

interest rate.

 Debt issue costs – Debt issue costs include third party fees such as legal

costs, accounting costs, investment banking or banking fees (other than fees

paid to the creditor), registration costs, and other costs directly attributable

to realizing the proceeds of the debt issued. Debt issue costs should be

reported in the balance sheet as deferred charges, classiﬁed as a reduction of

debt on the liability side of the balance sheet under ASC 835-30-45-1A.

2 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

There is diversity in practice on the classiﬁcation of the gain or loss upon the extinguishment of debt. Certain companies classify the

gain or loss in interest expense. Other companies report the gain or loss on debt extinguishments separately. Both classiﬁcations are

acceptable. It is not acceptable to classify a gain or loss on extinguishment of debt as an extraordinary item unless the gain or loss

meets the criteria for presentation as an extraordinary item in ASC 225-20, Extraordinary and Unusual Items. We believe it will be

rare that a gain or loss on extinguishment of debt meets those criteria.

The Practice Aid also considers accounting for preferred stock modiﬁcation and extinguishments. The Aid does not discuss situations

in which the debtor restates its liabilities generally, for example a debtor that has ﬁled a petition with the bankruptcy court and

expects there will be a general restatement of its liabilities as part of its reorganization as a going concern under Chapter 11 of the

Bankruptcy Code.

For our related Practice Aid, BDO Knows: Complex Financial Instruments see www.bdo.com/insights/assurance/fasb/

understanding-complex-ﬁnancial-instruments.

STEP A2: Using the basic

extinguishment model and

following the two steps in the

Practice Aid, recognize a gain in the

statement of operations.

STEP A3: Follow the three steps

provided in the Practice Aid.

STEP A4: Follow the three steps

provided in the Practice Aid.

GO TO STEP C.

IS THE DEBT A TERM LOAN?

Continued on next page

STEP A: Is the debt modiﬁcation a troubled debt restructuring under

ASC 470-60?

STEP A1: Is the borrower experiencing ﬁnancial difﬁculties and has

the creditor granted a concession to the debtor that it would not

otherwise consider?

STEP A2: Has the debt been fully settled?

STEP A3: Has the debt been partially settled with assets and equity?

STEP A4: Have the terms of the debt been restructured?

YES

NONO

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

STEP B123E: Extinguishment

The old and new debt instruments

are substantially different, and

the old debt is extinguished.

Using the basic extinguishment

model, follow the four steps

provided in the Practice Aid to

account for the extinguishment.

STEP B: Is the term debt modiﬁed or extinguished under ASC 470-50?

STEP C: Has the revolving debt or line of credit had a reduction in borrowing capacity?

STEP B1: Is the present value of the cash ﬂows under the new debt 10% or more

different from the present value of the old debt’s remaining cash ﬂows using

the effective interest rate of the old debt? Follow the four steps provided in the

Practice Aid to perform the 10% cash ﬂow test.

STEP B2: Was an embedded conversion option, which is not bifurcated,

amended such that the change in its fair value is 10% or more of the original

debt’s carrying amount immediately prior to the change?

STEP B3: Was a substantive (i.e., reasonably possible of being exercised)

conversion option, which is not bifurcated, added to or eliminated from the

debt instrument?

STEP C2

Amortize remaining discount or premium

(fees paid to or received from the creditor) and debt issue

costs (fees paid to third parties) of the original line with

any discount or premium (fees paid to or received from

the creditor), and debt issue costs (fees paid to third

parties) associated with the new arrangement over the

life of the modiﬁed line.

STEP C1

1. Write off unamortized discount and or premium

(fees paid to or received from the creditor) and

debt issue costs (fees paid to third parties) of the

original revolving debt or line of credit on a pro rata

basis. Calculate the pro rata write-off percentage

by dividing the change in borrowing capacity by the

original borrowing capacity.

2. Any fees paid to the creditor and any third-party

costs incurred shall be associated with the new

arrangement (that is, deferred and amortized over

the term of the new arrangement). The remaining

unamortized deferred costs relating to the old

arrangement are also deferred and amortized over the

term of the new arrangement.

STEP B123M: Modiﬁcation

The old and new debt instruments are NOT substantially different. The debt

is modiﬁed. The difference between the old and new debt is recognized as a

prospective change in effective interest rate. Follow the three steps provided in the

Practice Aid to account for the modiﬁcation.

YES

YES NO

GO TO STEP C.

IS THE DEBT A TERM LOAN?

YES

4 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

STEP A2: Using the basic extinguishment model, recognize as a gain:

1. The difference between the fair value of the assets transferred, if any, and the

carrying amount of the assets; and

2. The difference between the net carrying amount of the debt and the fair value

of the assets transferred/equity interest granted or the fair value of the debt.

STEP A3:

1. Recognize as a gain/loss the difference between the fair value of the assets

transferred if any, and the carrying amount of the assets.

2. Reduce the debt by the fair value of assets transferred/equity interests granted.

3. Proceed to Step A4.

STEP A4:

1. Determine future cash ﬂows of the restructured debt.

2. If the future cash ﬂows are less than the carrying amount of the debt, reduce

the carrying amount to the total of future cash payments. Record the

reduction as a gain.

3. If the future cash ﬂows are greater than the carrying amount of the debt,

account for the change in debt prospectively, using the effective interest rate

that equates the carrying amount to the future cash ﬂows.

4. Prepare the journal entries.

If a term loan, go to Step B. If a revolving loan or line of credit, go to Step C.

STEP A: Is the debt modiﬁcation a

troubled debt restructuring under

ASC 470-60?

STEP A1: Is the borrower

experiencing ﬁnancial difﬁculties

and has the creditor granted a

concession to the debtor that it

would not otherwise consider?

STEP A2: Has the debt been

fully settled?

STEP A3: Has the debt been

partially settled with assets

and equity?

STEP A4: Have the terms of the

debt been restructured?

YES

STEP A: DOES THE DEBT RESTRUCTURING FALL WITHIN THE SCOPE OF ASC 47060, TROUBLED

DEBT RESTRUCTURING?

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Troubled Debt Restructuring

ASC 470-60 and this section of the Practice Aid discuss

troubled debt restructuring from the perspective of the

debtor (the debtor, the company, or the borrower). For

troubled debt restructuring from the perspective of the

creditor (the creditor, the lender), see ASC 310-40, Troubled

Debt Restructurings by Creditors. The ASC Master Glossary

states, “A restructuring of a debt constitutes a troubled debt

restructuring if the creditor for economic or legal reasons

related to the debtor’s ﬁnancial difﬁculties grants a concession

to the debtor that it would not otherwise consider.” Under

ASC 470-60-15 as indicated in the deﬁnition and discussed

in-depth in this section, the two key features of a troubled

debt restructuring are that the debtor is experiencing

ﬁnancial difﬁculties and the creditor has provided concessions

associated with the economic situation of the debtor.

Debt, bonds, notes, and accounts payable, if formally

restructured, can all be modiﬁed in a troubled debt

restructuring. Four common examples of troubled debt

restructurings provide an introduction to the topic. RCompany

is in an industry suffering a downturn, and like many

companies in this industry, is encountering liquidity issues:

1. RCompany owes Lender Inc. $1.5 million; Lender

accepts $1 million cash from RCompany in full settlement

of the debt.

2. Lender Inc. holds RCompany bonds in the amount of $5

million. Lender accepts assets from RCompany’s having a

fair value of $4.25 million as full settlement of the bonds.

3. RCompany offers to settle its $7 million note payable to

Lender Inc. for $5.6 million in its equity securities. Lender

accepts the stock in full settlement of the note. The

conversion of the note into equity is not a provision of the

initial note payable contract.

4. Lender Inc. negotiates with RCompany to modify the

terms of R’s debt. Lender and R do not exchange any

assets or equity. To facilitate payment of the debt and

keep R operating, Lender reduces the contractual interest

rate to 2%, below the current market rate; extends the

due date from 12/31/16 to 6/30/18; reduces the face

amount of the debt from $9 million to $7 million; and

reduces the accrued interest that RCompany owes from

$1 million to $400 thousand.

Step A1: Is the Borrower Experiencing Financial

Difﬁculties and Has the Creditor Granted a

Concession to the Debtor that It Would Not

Otherwise Consider?

The debtor should assess whether it is experiencing ﬁnancial

difﬁculties if it has had deterioration in credit since the debt

was originally issued. For companies that are rated by credit

rating agencies, an indicator of such deterioration might

be a decrease in credit rating from investment grade to

noninvestment grade; however, changes within investment

grade are not considered a deterioration of credit. For all

companies, other indicators of deterioration include a drop in

the value of loan collateral, generally poor performance in the

company’s industry sector, inability to borrow at reasonable

rate, liquidity issues, and/or a decline in the company’s

performance. ASC 470-60-55-8 notes that all of the following

factors are indicators that the debtor is experiencing ﬁnancial

difﬁculties:

 The debtor is currently in default on any of its debt;

 The debtor is the process of or has declared bankruptcy;

 There is substantial doubt about the debtor continuing as a

going concern;

 The debtor has securities that have been delisted;

 The debtor forecasts that its cash ﬂows will be insufﬁcient

to service the existing debt (principal and interest); and/or

 The debtor does not have access to any other funds to

service its debt.

The debtor is not considered to be experiencing ﬁnancial

difﬁculties if the company is currently servicing its old debt

and can obtain funds at a rate equal to the current market

interest rate for nontroubled debtors from other creditors

and the creditor agrees to restructure the debt solely to

reﬂect decreases in market interest rates or improvement of

creditworthiness of the debtor.

A creditor generally grants a concession to a debtor in an

attempt to protect as much of its investment as possible.

Under ASC 470-60-55-10, if the debtor’s effective borrowing

rate on the new debt is less than the effective borrowing rate

of the old debt immediately prior to the restructuring, the

creditor has granted a concession. The effective interest rate

is deﬁned as the discount rate that equates the present value

of all future cash payments with the net carrying amount of

the old debt and provides a constant return over the life of

the debt.

6 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

A restructuring of troubled debt may include, but is not

necessarily limited to, one or a combination of the following:

 Transfer of assets or issuance of equity interest;

 Modiﬁcation of terms of the debt such as:

• Extension of the maturity date or dates at a stated

interest rate lower than the current market rate for

new debt with similar risk;

• Absolute or contingent reduction of the stated

interest rate;

• Absolute or contingent reduction of the face amount or

maturity amount of the debt; and/or

• Absolute or contingent reduction of accrued interest.

There are certain factors that affect the lender’s return on the

company’s loan, but do not affect the company’s accounting

such as the fair value of the debt immediately before and after

the restructuring, how long the lender held the debt, and how

much the lender invested in the restructured debt.

Step A2: Has the Debt Been Fully Settled?

A debtor may transfer assets and/or equity interests to the

creditor to fully settle the debt. Under ASC 470-60-35-2 to

4, the debtor company should use the basic extinguishment

model outlined on page 3 to account for the gain/loss on the

settlement. The debtor should recognize two components of

the gain/loss upon settlement:

1. The difference between the fair value of the assets

transferred, if any, and the carrying amount of those

assets, classiﬁed as gain/loss on asset disposal; and

2. The difference between the net carrying amount of the

debt and the fair value of the assets transferred/equity

interest granted or the fair value of the debt settled,

whichever is more clearly evident, classiﬁed as gain/loss

on debt restructuring.

For example, a company transfers a building with

a net book value of $1,500,000 and a fair value of

$2,000,000 to its creditor in full settlement of a

$2,200,000 debt obligation. Under (1) the company

recognizes a gain on transfer of the building of

$500,000 for the difference between fair value and

net carrying amount of the building. Under (2) the

company records a gain of $200,000 on the settlement

of the debt for the difference between the fair value

of the building transferred and the $2,200,000 net

carrying amount of the debt.

Step A3: Has the Debt Been Partially Settled?

Companies that restructure debt by transferring assets should

recognize the difference between the fair value and carrying

amount of assets transferred to the creditor as a gain or loss.

The carrying amount of the debt should be reduced by the fair

value of the assets transferred or of the equity interest granted

under ASC 470-60-35-2. For partial settlement, the guidance

precludes companies from utilizing the fair value of the debt

to calculate the reduction of the carrying amount of the

debt. This prohibition prevents arbitrary allocations between

extinguished and outstanding debt. If a company pays cash

in partial settlement of debt, the carrying amount of the debt

should be reduced by the amount of cash paid. Gain on the

restructured debt should only be recognized if the remaining

carrying amount of the debt exceeds the total undiscounted

future cash payments of the debt (principal plus interest)

after the restructuring. If the number of future payments is

indeterminate because the face amount and accrued interest

is payable on demand, estimates of total future cash payments

should be based on the maximum number of periods possible

under the revised debt agreement. The company should follow

the guidance in Step A4 to determine the accounting for the

remaining life of the debt.

Step A4: Have the Terms of the Debt

Been Restructured?

Under ASC 470-60-35-5 to 6, the debtor in a troubled debt

restructuring that involves a modiﬁcation of the terms of the

debt should perform the following steps:

1. Determine the undiscounted future cash ﬂows on the

restructured debt including principal, interest, and any other

payments exchanged between the debtor and creditor.

2. If the undiscounted future cash ﬂows are less than the

carrying amount of the debt:

a. Reduce the carrying amount of the debt to equal

the total of future cash payments. Record all future

payments as reductions to the carrying amount of

the debt; and

b. Record the remaining reduction as a gain. If the

creditor is a related party, record the amount of the

gain as a capital transaction.

3. If the undiscounted future cash ﬂows are greater than the

carrying amount of the debt, account for the change in the

debt prospectively by determining the effective interest

rate that equates the carrying amount of the debt to the

present value of the remaining cash ﬂows. In this case, no

gain or loss is recognized.

4. Prepare the journal entries.

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Payments to the creditor in a restructuring are accounted for

as noted in the paragraph above. Third party costs such as legal

and accounting fees are accounted for as follows:

TYPE OF THIRD

PARTY FEES:

ACCOUNTING FOR THIRD

PARTY FEES:

a. Fees for equity

issued to

restructure debt

Deduct fees from the amount

recorded for that equity interest

b. Fees paid to

restructure debt

If there is a gain from the

restructuring, reduce the gain

by the fees

If there is no gain from the

restructuring, expense the fees

c. Fees for both the

issuance of equity

and the restructuring

of the debt

Prorate the fees on a

reasonable basis:

 Account for the equity fees

as noted in a.

 Account for the cash fees

as noted in b.

If a company has recently restructured its debt and is currently

restructuring that debt again, the determination of the

effective borrowing rate must reﬂect the carrying amount of

the debt immediately preceding the earlier restructuring. The

standard does not deﬁne the term “recent” and consequently,

companies should use judgment. Generally, we believe the

recent past may be up to twelve months based on an analogy

to 470-50-40-12(f). However, the “lookback” period may be

shorter, for example, if the recent restructuring occurred only

three months prior to the current amendment.

A company determines if the second restructuring of the debt

is a trouble debt restructuring by:

1. Calculating the effective interest rate that equates the

carrying amount of the debt before the ﬁrst restructuring

to the cash ﬂows of the second restructured debt; and

2. Comparing the effective interest rate calculated in

1 to the effective interest rate of the debt before the

ﬁrst restructuring.

If the effective interest rate of the second restructured debt

is lower than the rate on the debt immediately preceding

the ﬁrst restructuring, a concession has been granted, and

the company should account for the change in debt as a

troubled debt restructuring. If the effective interest rate of the

second restructured debt is higher than the rate on the debt

immediately preceding the ﬁrst restructuring, a concession

has not been granted.

If the debtor company determines that the restructuring is

not a troubled debt restructuring, then it should analyze the

change in debt to determine whether it is a modiﬁcation or

extinguishment by testing the restructuring under Step B

(term debt) or Step C (revolving debt).

8 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE TDR.1  TROUBLED DEBT RESTRUCTURING  GAIN

FACTS

R Company has debt with a carrying amount of $5,000 currently owed to Lender, Inc. R Company is having ﬁnancial

difﬁculties and Lender grants R Company a concession on its debt. After negotiations with Lender, R Company’s debt is

reduced to $3,000 due in 10 years, with interest of 5% due annually.

ANALYSIS

Step A4.1: Determine the undiscounted future cash ﬂows of the restructured debt

The future cash ﬂows R Company will pay Lender, Inc. on the restructured debt total $4,500 ($3,000 of principal plus $1,500

interest ($150 per year for 10 years)). The future cash ﬂows of $4,500 are less than the carrying amount of the debt of $5,000.

Step A4.2: Reduce the carrying amount to the total of future cash payments and record the remaining reduction as a gain

R Company will reduce the carrying amount of the debt by $500 ($5,000 - $4,500) and record a gain of $500.

Step A4.4: Prepare the journal entries

R Company will not record any further interest on the debt. All principal and interest payments will be recorded as reduction of

debt. When the Company pays the balance of the debt in year 10, it will extinguish the debt.

Date of restructuring

Dr Old Debt $5,000

Cr New Debt $4,500

Cr Gain-Restructured Debt $ 500

Years 1 – 10

Dr New Debt $ 150

Cr Cash $ 150

Year 10

Dr New Debt $3,000

Cr Cash $3,000

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE TDR.2  TROUBLED DEBT RESTRUCTURING  NO GAIN

FACTS

S Company has debt that is due to its creditor, Lender, Inc. of $2,000 on August 1, 2019. S Company is having ﬁnancial

difﬁculties and Lender, Inc. grants S Company a concession on its debt. After negotiations with Lender, S Company will have

debt with a face amount of $1,500, due over 10 years with an interest rate of 7.5%.

ANALYSIS

Step A4.1: Determine the undiscounted future cash ﬂows of the restructured debt

S Company determines the annual interest and principal payment on a $1,500 note with an interest rate of 7.5% to be $221

by using TValue as shown in the attached ﬁle. The Company concludes that the future cash ﬂows of $3,710 ($221*10 = $2,210;

$2,210+$1,500=$3,710) are greater than the carrying amount of $2,000.

Nominal Annual Rate: 7.500 %

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 08/01/2019 1,500 1

2 Payment 08/01/2020 221* 10 Annual 08/01/2029

*calculated by TValue

Step A4.3: Determine the effective interest rate on the restructured debt and account for the change in the

debt prospectively

S Company determines the effective interest rate of the new debt to calculate the entries for the remainder of the life of the

debt. S Company uses TValue as shown in the attached ﬁle and the schedule below to determine that the annual effective

interest rate on the new debt is 1.856%:

Compound Period: Monthly

Nominal Annual Rate: 1.856 %*

AMORTIZATION SCHEDULE  NORMAL AMORTIZATION

Date Payment Interest Principal Balance

1 8/1/2020 221 37 184 1,816

2 8/1/2021 221 34 187 1,629

3 8/1/2022 221 30 191 1,438

4 8/1/2023 221 27 194 1,244

5 8/1/2024 221 23 198 1,046

6 8/1/2025 221 20 201 845

7 8/1/2026 221 16 205 640

8 8/1/2027 221 12 209 429

9 8/1/2028 221 8 213 217

10 8/1/2029 221 4 217 0

*calculated by TValue

10 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step A4.4: Prepare the journal entries

What entries will S Company record at the date of the restructuring and for the remaining life of the debt? S Company will

not record an entry at the date of the restructuring as the future cash ﬂows are greater than the carrying amount of the debt,

rather, it will account for the change in the debt prospectively. When S Company makes its annual debt payment, it will

record the interest expense at the calculated effective interest rate using the amortization schedule that follows:

August 1, 2020 Dr Interest Expense $ 37

Dr Debt $184

Cr Cash $221

August 1, 2021 Dr Interest expense $ 34

Dr Debt $ 187

Cr Cash $221

August 1, 2022 Dr Interest expense $ 30

Dr Debt $ 191

Cr Cash $221

August 1, 2023 Dr Interest expense $ 27

Dr Debt $194

Cr Cash $221

August 1, 2024 Dr Interest expense $ 23

Dr Debt $198

Cr Cash $221

August 1, 2025 Dr Interest expense $ 20

Dr Debt $201

Cr Cash $221

August 1, 2026 Dr Interest expense $ 16

Dr Debt $205

Cr Cash $221

August 1, 2027 Dr Interest expense $ 12

Dr Debt $ 209

Cr Cash $221

August 1, 2028 Dr Interest expense $ 8

Dr Debt $ 213

Cr Cash $221

August 1, 2029 Dr Interest expense $ 4

Dr Debt $ 217

Cr Cash $221

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

STEP B123E: Extinguishment

The old and new debt instruments

are substantially different, and the

old debt is extinguished. Using the

basic extinguishment model, follow

the four steps to account for the

extinguishment:

1. Determine the fair value of the

new debt.

2. Prepare the entry to write off

the old debt and record the

new debt. Any difference is

recorded as a gain or loss in the

statement of operations

a. Write off the unamortized

discount/premium (fees

paid to/received from the

creditor) and debt issue

costs (fees paid to third

parties) associated with the

old debt.

b. Capitalize the new debt

issue costs (fees paid to

third parties).

c. Write off the old debt and

record the new debt at fair

value. Because the debt is

recorded at fair value, any

debt discount/premium

(fees paid to/received from

the creditor) is written off.

3. Calculate the effective interest

rate of the new debt.

4. Prepare the entries for the

remaining life of the new debt.

STEP B: Is the term debt modiﬁed or extinguished under ASC 470-50?

STEP B1: Is the present value of the cash ﬂows under the new debt 10% or

more different from the present value of the old debt’s remaining cash ﬂows using

the effective interest rate of the old debt? Follow the four steps to perform the

10% test:

1. Determine the terms of the original debt (old debt) and the restructured debt

(new debt).

2. Calculate the effective interest rate of the old debt, including interest

payments at the contractual interest rate of the debt, debt issue costs, and

debt discounts or premiums.

3. Determine, using the effective interest rate of the old debt:

a. The present value of the remaining cash ﬂows of the old debt; and

b. The present value of the cash ﬂows of the restructured terms of the

new debt.

4. Calculate the percentage difference of the present value of the cash ﬂows of

the new debt and the present value of the remaining cash ﬂows of the old

debt. Is the difference at least 10%?

STEP B2: Was an embedded conversion option, which is not bifurcated,

amended such that the change in its fair value is 10% or more of the original

debt’s carrying amount immediately prior to the change?

STEP B3: Was a substantive (i.e., reasonably possible of being exercised)

conversion option, which is not bifurcated, added to or eliminated from the

debt instrument?

STEP B123M: Modiﬁcation

The old and new debt instruments are NOT substantially different. The debt is

modiﬁed. The difference between the old and new debt is recorded as a change in

effective interest rate. Follow the three steps to account for the modiﬁcation:

1. Record the entry upon modiﬁcation.

a. Expense the debt issue costs (fees paid to third parties) incurred to

modify the debt.

b. Recognize fees paid to/received from the creditor as a debt

discount/premium.

c. Record any change in the amount of the debt and cash received/paid,

if applicable.

2. Calculate the effective interest rate of the modiﬁed debt.

3. Prepare the entries for the remaining life of the modiﬁed debt.

YES

STEP B: HAS THE TERM DEBT BEEN MODIFIED OR EXTINGUISHED UNDER ASC 47050, DEBT

MODIFICATIONS AND EXTINGUISHMENTS?

Is the term debt modiﬁed or extinguished under ASC 470-50? Note: Refer to Step C for revolving debt and lines of credit.

12 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Introduction to Debt Extinguishment and

Modiﬁcation under ASC 470-50

Once the company has determined that the changes to

the terms of its debt does not represent a troubled debt

restructuring under ASC 470-60, then the company must

assess the change for debt modiﬁcation or extinguishment

under ASC 470-50. While the accounting model for

extinguishment is the same under ASC 470-60 and ASC 470-

50 (see page 3), the accounting model for debt modiﬁcation

is different under the two standards. Consequently, it is

important to select the appropriate model and to always

perform Step A, the troubled debt restructuring test, ﬁrst. As

noted above, this analysis is performed only if the change in

debt is between the same debtor and creditor.

If the company concludes that the change to the terms of its

debt is not a troubled debt restructuring, then the change

(e.g., principal, due date, interest rate, collateral, conversion

terms) should be analyzed under Step B. ASC 470-50-40-

10 establishes three tests for determining if the debt is

“substantially different” and therefore extinguished. If any one

of the three tests is passed, the debt is substantially different,

and the debtor then follows the basic extinguishment model

on page 3 and records a gain or loss in the statement of

operations. The three tests are:

1. Ten percent or more difference in cash ﬂows – The

present value of the cash ﬂows under the terms of the

new debt instrument is 10% or more different from the

present value of the old debt’s remaining cash ﬂows using

the effective interest rate of the old debt.

2. Embedded conversion option fair value difference

is 10% or more – The change in the fair value of an

embedded conversion option that is not bifurcated

(calculated as the difference between the fair value of the

embedded conversion option immediately before and

after the change) is at least 10% of the carrying amount

of the original debt instrument immediately prior to the

change; or

3. Addition or elimination of a substantive conversion

option – A modiﬁcation or an exchange of debt

instruments that adds a substantive conversion option

that is not bifurcated or eliminates a nonbifurcated

conversion option that was substantive at the date of the

modiﬁcation or exchange. If this is the case, there is no

need to perform tests 1 and 2.

Tests 2 and 3 apply to changes in debt instruments in

circumstances in which the embedded conversion option

is not bifurcated (i.e., the option is not a derivative asset or

liability and may be accounted for in equity). These tests do

not apply to conversion options that are separately accounted

for as derivative assets or liabilities before the change, after

the change, or both before and after the change. In these

circumstances, any change in the fair value of the bifurcated

derivative is recorded in the statement of operations as a

gain or loss. Further, the change in the debt is tested for

modiﬁcation and extinguishment solely using the 10% cash

ﬂow test.

EXTINGUISHMENT

As noted above, if the debtor determines that the original

loan has been extinguished, then the new loan should be

recorded at fair value. The debtor should determine the fair

value of the new debt based on the guidance in ASC 820, Fair

Value Measurement. Under the ASC, the fair value of the new

debt would be the price that a debtor would pay to transfer a

liability in an orderly transaction between market participants.

It is not appropriate to assume that the fair value of the new

debt is equivalent to the carrying amount of the old debt, the

face amount of the new debt, the face amount of the new debt

plus/minus the premium/discount, or the present value of the

new debt’s cash ﬂows calculated for purposes of the 10% cash

ﬂow test (the discount rate for the 10% test is not necessarily

the market rate that should be used to calculate fair value).

The fees paid to or received from the lender are not included

in the fair value of the debt. As indicated above, the fair value

of the debt is based on a different model (and 99.99% of

the time, is a different amount) than the carrying amount of

the debt plus/minus the premium/discount (based on a cost

model). This means that the premium or discount is eliminated

through the gain/loss line in the debt extinguishment entry.

It can be challenging for a company to calculate the fair value

of the new debt as the company requires its fair value interest

rate. If the company has no other creditors, the fair value

interest rate may be difﬁcult to determine. In this situation,

the company may want to consider hiring a valuation

specialist. See the example in Step B for one approach in

determining the fair value of a loan.

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

The four steps for accounting for and recording a debt

extinguishment, Steps B123.1E – B123.3E, are:

1. Determine the fair value of the new debt.

2. Prepare the entry to write off the old debt and record the

new debt. Any difference is recorded as a gain or loss in

the statement of operations:

a. Write off the unamortized discount/premium

(fees paid to/received from the creditor) and debt issue

costs (fees paid to third parties) associated with the

old debt.

b. Capitalize the new debt issue costs (fees paid to

third parties).

c. Write off the old debt and record the new debt at fair

value. Because the debt is recorded at fair value, any

debt discount/premium (fees paid to/received from the

creditor) is written off.

3. Calculate the effective interest rate of the new debt.

4. Prepare the entries for the remaining life of the debt.

MODIFICATION

If a company determines that its debt has been modiﬁed

rather than extinguished, under ASC 470-50-40-14, the

company accounts for the change by calculating a new

effective interest rate for the modiﬁed loan based on the

carrying amount of the debt and the present value of the

revised future cash ﬂow payment stream. Modiﬁcation does

not result in recognition of a gain or loss in the statement of

operations, but does impact interest expense recognized in the

future. Upon a modiﬁcation, the debtor should not recognize a

beneﬁcial conversion feature or reassess an existing beneﬁcial

conversion feature.

The three steps for accounting for and recording a debt

modiﬁcation, Steps B123.1M – B123.3M, are:

1. Record the entry upon modiﬁcation.

a. Expense the debt issue costs (fees paid to third parties)

incurred to modify the debt.

b. Recognize fees paid to/received from the creditor as a

debt discount/premium.

c. Record any change in the amount of the debt and cash

received/paid, if applicable.

2. Calculate the effective interest rate of the modiﬁed debt.

3. Prepare the entries for the remaining life of the

modiﬁed debt.

Details of Steps B1 – B3, follow with examples.

Step B1: Is the present value of the cash ﬂows under

the new debt 10% or more different from the present

value of the old debt’s remaining cash ﬂows using the

effective interest rate of the old debt?

DEFINITIONS

ASC 470-50-40 offers the following guidance and deﬁnitions

to assist in performing the 10% cash ﬂow test.

 Discount Rate - The discount rate to be used to calculate

the present value of the cash ﬂows is the effective

interest rate, for accounting purposes, of the original debt

instrument.

 Cash Flows - The cash ﬂows of the new debt instrument

include all cash ﬂows speciﬁed by the terms of the new

debt instrument plus any amounts paid by the debtor to

the creditor less any amounts received by the debtor from

the creditor as part of the exchange or modiﬁcation (i.e.,

the change in the amount of the borrowing). If the debtor

gave the creditor warrants or stock as a “sweetener” to

effect the modiﬁcation or exchange, these sweeteners are

included in the cash ﬂows of the new debt instrument.

 Floating Interest Rate - If the original debt instrument

and/or the new debt instrument has a ﬂoating interest

rate, then the variable rate in effect at the date of the

exchange or modiﬁcation is to be used to calculate the

cash ﬂows of the variable-rate instrument.

 Callable/Puttable Debt - If either the new debt

instrument or the original debt instrument is callable

or puttable, then separate cash ﬂow analyses are to be

performed assuming prepayment of the debt by exercise of

the call or put.

Assumption of prepayment by exercise of the put or call

will generate the smallest change in cash ﬂows if there is

a small or no prepayment premium. If the prepayment

premium upon put or call results in a change that is less

than 10%, the testing will be complete, and the conclusion

will be loan modiﬁcation.

Debt modiﬁcation/extinguishment testing and accounting

are weighted towards modiﬁcation. Consequently, the

cash ﬂow assumptions that generate the smallest change

would be the basis for determining whether the 10%

threshold is met.

14 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

 Contingent Payments - If the debt instruments contain

contingent payment terms or unusual interest rate terms,

judgment should be used to determine the appropriate

cash ﬂows.

 Third Party Fees - Third party fees should not be included

in the present values of the old and new debt cash ﬂows for

purposes of Step B1.3 below.

 Change in Value of Embedded Conversion Option

that Is Not Bifurcated – If such a change results from

an exchange of debt instruments or a modiﬁcation in the

terms of an existing debt instrument, the change is not

included in the 10% cash ﬂow test. Rather, a separate

test is performed by comparing the change in the fair

value of the embedded conversion option to the carrying

amount of the old debt instrument immediately before the

modiﬁcation. See Step B2.

 Cumulative Changes within One Year - If within one

year of the current transaction the debt has been changed

without being extinguished, then the debt terms that

existed before the ﬁrst modiﬁcation should be used to

determine whether the current transaction is substantially

different. For the 10% test, the company requires the

amounts discounted at the effective interest rate of the

original loan representing:

1. The present value as of the ﬁrst modiﬁcation date of

the remaining cash ﬂows of the original loan, and

2. The present value as of the ﬁrst modiﬁcation date of:

a. The cash ﬂows of the ﬁrst modiﬁed loan from the ﬁrst

modiﬁcation date to the second modiﬁcation date,

including all fees paid to the creditor and all principal

payments; and

b. The cash ﬂows of the second modiﬁed loan from the

second modiﬁcation date to maturity date, including all

fees paid to the creditor and all principal payments.

GUIDANCE

Cash ﬂows to incorporate all changes in the debt – The

debtor should include in the analysis changes in the cash ﬂow

due to changes in the debt principal, interest rates, and or

maturity dates. Under ASC 470-50-05-4, the analysis should

also include fees paid to/from the debtor and creditor, such

as fees to change debt recourse features, priority of the debt,

collateral, covenants, waivers, guarantees, and option features.

If the debtor or creditor pays noncash fees in for example,

stock, warrants, or other assets, the fair value of these noncash

fees should be included in the analysis as a day one cash

outﬂow or inﬂow.

Old and new principal to be on an apples-to-apples basis -

If the change in debt includes a change in the principal

amount, such change should be considered when performing

the 10% test (i.e., increase/decrease in principal amount is

included as a day-one cash inﬂow/outﬂow in the cash ﬂows of

the new debt).

To illustrate, we assume that R Company has old debt of

$100 million and new debt with the same creditor of $120

million. The new debt is not a troubled debt restructuring. In

performing the 10% test, the present values of the cash ﬂows

of the old debt ($100 million) and new debt ($120 million)

are compared. Because the $20 million is both a day one cash

inﬂow AND an outﬂow as principal is paid over the life of the

loan, the net principal amounts included in the old and new

debt present value calculations are the same, $100 million. If

the Company failed to consider the $20 million cash inﬂow in

the calculation of present value for the new debt, the Company

could inappropriately conclude that an extinguishment

occurred because the change in principal was improperly

included in the present value calculation.

Companies should verify that the old and new debt present

values are on an apples-to-apples basis by checking that the

undiscounted principal for the old and new debt are the same.

The 10% test is not a test of the change in principal; it is a test

of the change in present value of a common principal amount

over time including fees paid to/received from the creditor.

Analysts sometimes fail to perform the principal check, and

this common error can result in a conclusion of extinguishment

when the loan is in fact modiﬁed.

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Loan participations vs. syndications - The debt modiﬁcation/

extinguishment analysis differs for loan participations and

loan syndications. In a loan participation, a single lead creditor

makes a loan to the debtor and then transfers participation

interests in the loan to other creditors. A debtor company

need only perform a single cash ﬂow analysis for a loan

participation because from the company’s perspective, there

is only one creditor. In a loan syndication, the debtor has a

credit relationship with multiple creditors, i.e., each member of

the syndicate. As a result, the debtor would need to perform a

cash ﬂow analysis for each individual creditor in the syndicate

in a debt modiﬁcation/extinguishment analysis. In a loan

participation, one lender signs the debt agreement. In a loan

syndicate, each and every member of the syndicate signs the

debt agreement. A simple review of the signature pages of the

debt agreement provides insight into the loan participation/

syndication determination.

Assessing multiple lenders - The debt modiﬁcation/

extinguishment analysis is typically performed on a

creditor-by-creditor basis. Hence, a debtor in a syndication

arrangement should also perform an analysis to determine

if each creditor is, in fact, distinct. An issue may arise when

creditors are individual funds with the same asset manager.

Judgment should be applied to determine if these funds should

be considered one combined creditor or treated as individual

creditors. Factors to consider include: (1) a fund’s structure and

management, including the parties responsible for negotiating

changes in any terms (2) who the general partner is, and (3)

whether the funds are under common control.

Intermediary as debtor or creditor - If an intermediary is

involved, the debt modiﬁcation/extinguishment analysis

differs depending on whether the intermediary is acting as the

debtor’s agent or as a creditor (a principal). ASC 470-50-55-1

to 5 provides guidance for distinguishing between an agent

and a principal. If the intermediary is acting as an agent for the

debtor company, the company and the agent are considered

one, and the company should act as though it transacted

directly with the creditor. If the intermediary is acting as a

principal, the intermediary is treated like a third-party creditor

in the debt modiﬁcation/extinguishment analysis.

Four steps to the 10% cash ﬂow test, Steps B1.1 – B1.4:

1. Determine the terms of the original debt (old debt) and

the restructured debt (new debt).

2. Calculate the effective interest rate of the old debt,

including interest payments at the contractual interest

rate of the debt, debt issue costs (fees paid to third

parties), and debt discounts/premiums (fees paid to/

received from the creditor).

3. Determine, using the effective interest rate of the old debt:

a. The present value of the remaining cash ﬂows of the old

debt; and

b. The present value of the cash ﬂows of the new debt.

4. Calculate the percentage difference of the present

value of the cash ﬂows of the new debt and of the

present value of the remaining cash ﬂows of the old

debt. Conclude on whether the change in the debt is an

extinguishment or a modiﬁcation.

16 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE DM.1  10% CASH FLOW TEST  MODIFICATION

FACTS

R Company borrows $750,000 from Lender, Inc. on January 1, 2019. The debt is due on December 31, 2023 - it is issued at

par, the contractual interest rate is 8% and the fee paid to the creditor (discount) is 4% of the face amount of the debt or

$30,000. Debt issue costs for lawyers and accountants amounted to $20,000. Interest is due annually.

R Company records the following entry on the date it borrows the $750,000 from Lender, Inc.:

Dr Cash $ 700,000

Dr Debt Discount $ 30,000

Dr Debt Issue Costs $ 20,000

Cr Debt $750,000

On January 1, 2022, R Company borrows an additional $375,000 from Lender, Inc. as it needs greater liquidity to ﬁnish

developing and begin marketing a new product. Lender, Inc. agrees to extend the due date of the original debt three years and

to make the additional debt due on the same date, December 31, 2026. Lender also agrees to maintain the interest rate of

the old debt, 8%. In return, R Company provides 20,000 shares of its common stock to Lender with a fair value of $45,790. R

Company pays $33,000 of debt issue costs to its accountant and attorneys for work associated with the loan modiﬁcation.

At January 1, 2022, R Company had amortized $27,100 of the debt discount (fees paid to the creditor) and debt issue costs

(fees paid to third parties); $22,900 remained to be amortized. The debt is not callable or puttable.

For a more complex example of an amortizing loan, see Appendix A.

ANALYSIS

Step B1: 10% Cash Flow Test Analysis

Using the 10% cash ﬂow test, is R Company’s change in debt a modiﬁcation or extinguishment?

Present value of the remaining cash ﬂows of old debt $727,270

Present value of the cash ﬂows of modiﬁed debt $720,771

Difference $ 6,499

Percentage difference 0.9%

R Company concludes that the restructured debt represents a modiﬁcation under the 10% cash ﬂow test, as the percentage

difference is less than 10%. R Company performed the 10% cash ﬂow test analysis by performing the steps below.

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE DM.1  10% CASH FLOW TEST  MODIFICATION CONTINUED

Step B1.1: Determine the terms of the old debt and the new debt

Old Debt New Debt

Face Amount $750,000 $1,125,000

Contractual Interest Rate 8% 8%

Issuance/Restructure Date 01/01/2019 01/01/2022

Type of Cash Flows Date Amount Amount

Debt 01/01/2019 $750,000

Debt Discount (fees paid to the creditor) 01/01/2019 -$30,000

Debt Issue Costs (fees paid to third parties) 01/01/2019 -$20,000

Annual Interest Payment 12/31/2019-12/31/2023 -$60,000

Unamortized Debt Discount (fees paid to the creditor) and

Debt Issue Costs (fees paid to third parties)

01/01/2022 -$22,900

Additional Debt 01/01/2022 $375,000

Debt Discount (fees paid to the creditor) –

Common Stock

01/01/2022 -$45,790

Debt Issue Costs (fees paid to third parties) 01/01/2022 -$33,000

Annual Interest Payment 12/31/2022-12/31/2026 -$90,000

Principal Payment 12/31/2023 -$750,000

Principal Payment 12/31/2026 -$1,125,000

Step B1.2: Calculate the effective interest rate of the old debt

Include in the calculation interest payments at the contractual rate of interest, debt issue costs (fees paid to third parties),

and debt discount (fees paid to the creditor).

R Company uses TValue as shown in the attached ﬁle and the schedule below to determine that the annual effective

interest rate on the old debt is 9.754%:

Compound Period: Annual

Nominal Annual Rate: 9.754 %*

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2019 750,000 1

2 Loan 01/01/2019 30,000- 1

3 Loan 01/01/2019 20,000- 1

4 Payment 12/31/2019 60,000 5 Annual 12/31/2023

5 Payment 12/31/2023 750,000 1

*calculated by TValue

18 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step B1.3a: Determine the PV of the remaining cash ﬂows of the old debt using the effective interest rate of the old debt

Include in the calculation interest payments at the contractual rate of interest, debt issue costs (fees paid to third parties),

and debt discount (fees paid to the creditor).

R Company uses TValue as shown in the attached ﬁle and the schedule below to determine that the annual effective

interest rate on the old debt is 9.754%:

Compound Period: Annual

Nominal Annual Rate: 9.754 %*

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 727,270* 1

2 Payment 12/31/2022 60,000 2 Annual 12/31/2023

3 Payment 12/31/2023 750,000 1

*calculated by TValue

Step B1.3b: Determine the PV of the cash ﬂows of the new debt using the effective interest rate of the old debt

R Company checks that the principal of the old and new debt is on an apples to apples basis before proceeding. The

principal of the old debt is $750,000, and the net principal of the new debt is $750,000 ($1,125,000-$375,000). As the

principal is the same, R Company calculates the present value of the cash ﬂows to the creditor for the new debt using the

effective interest rate of the old debt to be $720,771.

Compound Period: Annual

Nominal Annual Rate: 9.754 %*

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 720,771* 1

2 Loan 01/01/2022 375,000 1

3 Loan 01/01/2022 -45,790 1

4 Payment 12/31/2022 90,000 5 Annual 12/31/2026

5 Payment 12/31/2026 1,125,000 1

*calculated by TValue

Step B1:4: Calculate the percentage difference of the PV of the cash ﬂows of the new debt and the PV of the

remaining cash ﬂows of the old debt

Percentage difference– $720,771/727,270 = 99.1.%, .9% different

R Company concludes that the restructured debt represents a modiﬁcation as the percentage difference is less than 10%.

R Company’s debt does not include a conversion option. Consequently, R Company answers Steps B2 and B3 “no” and

continues to Step B123 Modiﬁcation.

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE DM.1  10% CASH FLOW TEST  MODIFICATION CONTINUED

Step B123: Modiﬁcation

Step B123.1M: Record the entry upon modiﬁcation

The Company incurred $33,000 in debt issue costs, fees to attorneys and accountants, for the modiﬁcation. Since these

fees are expensed, they are not included in the calculation of effective interest rate of the modiﬁed debt.

Dr Debt Modiﬁcation Expense $ 33,000

Cr Cash $ 33,000

Step B123.1Mb: Recognize fees paid to/received from the creditor as a debt discount/premium

Fees paid for the creditor’s third party cost are fees paid to the creditor and are not debt issue costs. The fees paid to the

creditor are deducted from the loan proceeds as a debt discount. R Company issued shares of its common stock with a fair

value of $45,790 to Lender, Inc. for the debt modiﬁcation.

Dr Debt Discount $ 45,790

Cr Common Stock $ 45,790

Step B123.1Mc: Record any change in the amount of the debt and cash received/paid

At the date of modiﬁcation, R Company records the incremental debt and cash received (combined with the entries for a

and b above).

January 1, 2016 – Date of the Modiﬁcation

Dr Cash $342,000

Dr Debt Discount $ 45,790

Dr Debt modiﬁcation expense $ 33,000

Cr Debt $375,000

Cr Common Stock $ 45,790

Step B123:2M: Calculate the effective interest rate of the modiﬁed debt

The Company includes in its calculation of effective interest rate the interest payments at the contractual rate, remaining

debt issue costs (fees paid to third parties) and discount (fees paid to the creditor) from the old debt, and discount (fees

paid to the creditor) from the new debt, and determines the rate to be 9.600%:

New Debt

Effective Interest Rate 9.600%

Date Amount

Old Debt 01/01/2022 $750,000

Additional New Debt 01/01/2022 $375,000

Unamortized Debt Issue Costs and Discount of Old Debt 01/01/2022 -$22,900

Fees Paid to the Creditor (Common Stock) for New Debt 01/01/2022 -$45,790

Annual Interest Payment 12/31/2022-

12/31/2026

-$90,000

Principal Payment 12/31/2026 $1,125,000

20 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

R Company uses TValue as shown in the attached ﬁle and the schedule below to determine the annual effective interest

rate on the new debt to be 9.594%. R Company includes the amortization information in the schedule below for purposes

of preparing the journal entries.

Compound Period: Annual

Nominal Annual Rate: 9.600%*

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 750,000 1

2 Loan 01/01/2022 375,000 1

3 Loan 01/01/2022 45,790- 1

4 Loan 01/01/2022 22,900- 1

5 Payment 12/31/2022 90,000 5 Annual 12/31/2026

6 Payment 12/31/2026 1,125,000 1

*calculated by TValue

AMORTIZATION SCHEDULE - Normal Amortization

Date Loan Payment Interest Principal Balance

Loan 01/01/2022 750,000 750,000

Loan 01/01/2022 375,000 0 0 1,125,000

Loan 01/01/2022 45,790- 0 0 1,079,210

Loan 01/01/2022 22,900- 0 0 1,056,310

1 12/31/2022 90,000 101,130 11,130- 1,067,440

2 12/31/2023 90,000 102,476 12,476- 1,079,916

3 12/31/2024 90,000 103,673 13,673- 1,093,589

4 12/31/2025 90,000 104,986 14,986- 1,108,575

5 12/31/2026 90,000 106,425 16,425- 1,125,000

6 12/31/2026 1,125,000 0 1,125,000 0

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE DM.1  10% CASH FLOW TEST  MODIFICATION CONTINUED

Step B123:3M: Prepare the entries for the remaining life of the modiﬁed debt

Using the amortization schedules above, R Company will record the following entries each year until the debt is paid off

on December 31, 2020.

December 31, 2022 Dr Interest Expense $ 101,130

Cr Debt Discount $ 11,130

Cr Cash $ 90,000

December 31, 2023 Dr Interest expense $ 102,476

Cr Debt Discount $ 12,476

Cr Cash $ 90,000

December 31, 2024 Dr Interest expense $ 103,673

Cr Debt Discount $ 13,673

Cr Cash $ 90,000

December 31, 2025 Dr Interest expense $ 104,986

Cr Debt Discount $ 14,986

Cr Cash $ 90,000

December 31, 2026 Dr Interest expense $ 106,425

Dr Debt $1,125,000

Cr Debt Discount $ 16,425

Cr Cash $1,215,000

EXAMPLE DM.2  10% CASH FLOW  MULTIPLE RESTRUCTURING WITHIN ONE YEAR

FACTS

The facts are the same as in the example above. However, at July 1, 2022, R Company borrows an additional $1,000,000 from

Lender, Inc. at 8%. The lender extends the due date to December 31, 2027. The Company pays fees of $65,000 to the lender

and $50,000 to the attorneys.

At July 1, 2022, R Company had amortized $32,800 of the debt discount (fees paid to the creditor) and debt issue costs (fees

paid to third parties); $62,990 remained to be amortized, which includes the unamortized amount of the fees paid to the

creditor for the January 1, 2022 modiﬁcation.

ANALYSIS

Step B1: 10% Cash Flow Test Analysis

Using the 10% cash ﬂow test, is R Company’s change in debt a modiﬁcation or extinguishment?

Present value of the remaining cash ﬂows of old debt $ 727,270

Present value of the cash ﬂows of modiﬁed debt (cumulative) $700,302

Difference $ 26,968

Percentage difference 3.7%

22 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE DM.2  10% CASH FLOW  MULTIPLE RESTRUCTURING WITHIN ONE YEAR CONTINUED

R Company concludes that the restructured debt represents a modiﬁcation under the 10% cash ﬂow test, as the percentage

difference is less than 10%. R Company performed the cash ﬂow test analysis by performing the steps below.

Step B1.1: Determine the terms of the old debt and new debt

Old Debt New Debt New,

New Debt

Face Amount $750,000 $1,125,000 $2,125,000

Contractual Interest Rate 8% 8% 8%

Issuance/Restructure Date 01/01/2019 01/01/2022 07/01/2022

Type of Cash Flows Date Amount Amount Amount

Debt 01/01/2019 $750,000

Debt Discount (fees paid to the creditor) 01/01/2019 -$30,000

Debt Issue Costs (fees paid to

third parties)

01/01/2019 -$20,000

Annual Interest Payment 12/31/2019-12/31/2023 -$60,000

Unamortized Debt Discount (fees paid

to the creditor) and Debt Issue Costs

(fees paid to third parties)

01/01/2022 -$22,900

Additional Debt 01/01/2022 $375,000

Debt Discount (fees paid to the creditor) –

Common Stock

01/01/2022 -$45,790

Debt Issue Costs (fees paid to third parties) 01/01/2022 -$33,000

Additional Debt 07/01/2022 $1,000,000

Unamortized Debt Discount (fees paid

to the creditor) and Debt Issue Costs

(fees paid to third parties)

07/01/2022 -$62,990

Debt Discount (fees paid to the creditor) 07/01/2022 -$65,000

Debt Issue Costs (fees paid to third parties) 07/01/2022 -$50,000

Interest Payment (a) 12/31/2022 -$130,000

Annual Interest Payment 12/31/2022 -12/31/2026 -$90,000

Annual Interest Payment 12/31/2023-12/31/2026 -$170,000

Principal Payment 12/31/2023 -$750,000

Principal Payment 12/31/2026 -$1,125,000

Principal Payment 12/31/2027 -$2,125,000

(a) Includes $45,000 of interest from 1/1/2022 to 6/30/22 and $85,000 from 7/1/2022 to 12/31/2022

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE DM.2  10% CASH FLOW  MULTIPLE RESTRUCTURING WITHIN ONE YEAR CONTINUED

Step B1.2: Determine the effective interest rate of the old debt

R Company calculates the effective interest rate of the debt existing just prior the earliest restructuring completed

within twelve months of the latest modiﬁcation date (i.e., 1/1/22 is the earliest modiﬁcation date during the period from

7/1/2021 to 7/1/2022). In this case, the debt was not modiﬁed between the date it was ﬁrst issued (1/1/2019) and the

ﬁrst modiﬁcation date in the twelve-month period (1/1/2022) and therefore the effective interest rate, 9.754% (see

Example DM.1 for calculation) of the original debt is used.

Step B1.3: Determine the present value of the old and new debt

Step B1.3a: Determine the present value of the remaining cash ﬂows of the old debt using the effective interest rate

of the old debt

R Company calculates the present value of the remaining cash ﬂows of the old debt using the terms that existed just prior

to 1/1/2022, which in this case is the same as the original terms of the debt. Therefore, R Company calculates the present

value of the old debt using TValue to be $727,270 (see Example DM.1 for calculation).

Step B1.3b: Determine the PV of the cash ﬂows of the new debt (cash ﬂows of ﬁrst and second modiﬁed loans) using

the effective interest rate of the old debt

R Company calculates the present value of the cash ﬂows to the creditor for the ﬁrst modiﬁed and the second modiﬁed

debt using the effective interest rate of the old debt to be $700,302 (i.e., using a cumulative assessment).

Compound Period: Annual

Nominal Annual Rate: 9.754 %

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 700,302* 1

2 Loan 01/01/2022 375,000 1

3 Loan 01/01/2022 -45,790 1

4 Loan 07/01/2022 1,000,000 1

5 Loan 07/01/2022 -65,000 1

6 Payment 12/31/2022 130,000 1

7 Payment 12/31/2023 170,000 5 Annual 12/31/2027

8 Payment 12/31/2027 2,125,000 1

*calculated by TValue

Step B1:4: Calculate the percentage difference of the PV of the cash ﬂows of the new debt and the PV of the remaining

cash ﬂows of the old debt

Percentage difference – 700,302/727,270 = 96.3.%, 3.7% different

R Company concludes that the restructured debt represents a modiﬁcation as the percentage difference is less than 10%.

R Company’s debt does not include a conversion option. Consequently, R Company answers Steps B2 and B3 “no” and

continues to Step 123 Modiﬁcation.

24 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step B123: Modiﬁcation

Step B123.1M: Record the entry upon modiﬁcation

Step B123.1Ma: Expense the debt issues costs (fees paid to third parties) incurred to modify the debt

The Company incurred $50,000 in debt issue costs, fees to attorneys and accountants, for the modiﬁcation. Since these

fees are expensed, they are not included in the calculation of effective interest rate of the modiﬁed debt.

Dr Debt Modiﬁcation Expense $ 50,000

Cr Cash $ 50,000

Step B123.1Mb: Recognize fees paid to/received from the creditor as a debt discount/premium

The fees paid to the creditor are deducted from the loan proceeds as a debt discount.

Dr Debt Discount $ 65,000

Cr Cash $ 65,000

Step B123.1Mc: Record any change in the amount of the debt and cash received/paid

R Company records the following entry at the date of the second modiﬁcation (combined with entries a and b above).

July 1, 2022 – Date of the Modiﬁcation

Dr Cash $885,000

Dr Debt Discount $ 65,000

Dr Debt modiﬁcation expense $ 50,000

Cr Debt $1,000,000

Step B123:2M: Calculate the effective interest rate of the modiﬁed debt

The Company includes in its calculation of effective interest rate the interest payments at the contractual rate, remaining

debt issue costs (fees paid to third parties) and discount (fees paid to the creditor) from the old debt, and discount (fees

paid to the creditor) from the new debt, and determines the rate to be 9.449%:

New, New Debt

Effective Interest Rate 9.449%

Date Amount

Old Debt 07/01/2022 $1,125,000

Additional New Debt 07/01/2022 $1,000,000

Fees Paid to the Creditor for New, New Debt 07/01/2022 -$65,000

Unamortized Debt Issue Costs and Discount of Old Debt 07/01/2022 -$62,990

Six-Months Interest Payment 12/31/2022 -$85,000

Annual Interest Payment 12/31/2023-12/31/2027 -$170,000

Principal Payment 12/31/2027 -$2,125,000

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE DM.2  10% CASH FLOW  MULTIPLE RESTRUCTURING WITHIN ONE YEAR CONTINUED

R Company uses TValue as shown in the attached ﬁle and the schedule below to determine the annual effective interest

rate on the new debt to be 9.449%. R Company includes the amortization information in the schedule below for purposes

of preparing the journal entries.

Compound Period: Exact days

Nominal Annual Rate: 9.449 %*

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 07/01/2022 1,125,000 1

2 Loan 07/01/2022 1,000,000 1

3 Loan 07/01/2022 65,000- 1

4 Loan 07/01/2022 62,990- 1

5 Payment 12/31/2022 85,000 1

5 Payment 12/31/2022 170,000 5 Annual 12/31/2027

6 Payment 12/31/2027 2,125,000 1

*calculated by TValue

AMORTIZATION SCHEDULE - Normal Amortization

Date Loan Payment Interest Principal Balance

Loan 07/01/2022 1,125,000 1,125,000

Loan 07/01/2022 1,000,000 0 0 2,000,000

Loan 07/01/2022 65,000- 0 0 2,060,000

Loan 07/01/2022 62,990- 0 0 1,997,010

1 12/31/2022 85,000 94,607 9,607- 2,006,617

2 12/31/2023 170,000 189,605 19,605- 2,026,222

3 12/31/2024 170,000 191,457 21,457- 2,047,679

4 12/31/2025 170,000 193,485 23,485- 2,071,164

5 12/31/2026 170,000 195,704 25,704- 2,096,868

6 12/31/2027 170,000 198,132 28,132- 2,125,000

7 12/31/2027 2,125,000 0 2,125,000 0

26 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step B123:3M: Prepare the entries for the remaining life of the modiﬁed debt

Using the amortization schedules above, R Company prepares the following journal entries to record each year until the

debt is paid off on December 31, 2027.

December 31, 2022 Dr Interest Expense $ 94,607

Cr Debt Discount $ 9,607

Cr Cash $ 85,000

December 31, 2023 Dr Interest expense $ 189,605

Cr Debt Discount $ 19,605

Cr Cash $ 170,000

December 31, 2024 Dr Interest expense $ 191,457

Cr Debt Discount $ 21,457

Cr Cash $ 170,000

December 31, 2025 Dr Interest expense $ 193,485

Cr Debt Discount $ 23,485

Cr Cash $ 170,000

December 31, 2026 Dr Interest expense $ 195,704

Cr Debt Discount $ 25,704

Cr Cash $ 170,000

December 31, 2027 Dr Interest expense $ 198,132

Dr Debt $2,125,000

Cr Debt Discount $ 28,132

Cr Cash $2,125,000

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE DE.1  10% CASH FLOW TEST  EXTINGUISHMENT

FACTS

R Company borrows $1,000,000 from Lender, Inc. on January 1, 2019. Interest is due annually and principal is due with

the ﬁnal payment on December 31, 2023. The debt is issued at par, the contractual interest rate is 8% and the fee paid to

the creditor (the discount) is 5% of the face amount of the debt or $50,000. Debt issue costs for lawyers and accountants

amounted to $40,000. R Company records the following entry on the date it borrows $1,000,000 from Lender, Inc.:

Dr Cash $910,000

Dr Debt Discount $ 50,000

Dr Debt Issue Costs $ 40,000

Cr Debt $1,000,000

On January 1, 2022, R Company negotiated with Lender, Inc. to receive an additional $900,000 and add it to the balance of

the note and extend the due date to December 31, 2026. R Company determined that the new borrowing did not represent

a troubled debt restructuring as the company was not having ﬁnancial difﬁculties and Lender, Inc. did not provide any

concessions. R Company borrowed the additional $900,000 from Lender as it needed capital to develop a new product.

R Company paid its accountants and attorneys $45,000 for services rendered for the new debt (debt issue costs). Lender, Inc.

increased the interest rate to 12%. R Company paid Lender, Inc. a fee of $60,000 for the new debt.

At January 1, 2022, R Company had amortized $47,200 of the debt discount (fees paid to the creditor) and debt issue costs

(fees paid to third parties); $42,800 remained to be amortized. The debt is not callable or puttable.

For a more complex example of an amortizing loan that, see the Appendix B.

ANALYSIS

Step B1: 10% Cash Flow Test

Using the 10% cash ﬂow test, is R Company’s change in debt a modiﬁcation or extinguishment?

Present value of the remaining cash ﬂows of old debt $ 958,734

Present value of the cash ﬂows of new debt $1,174,221

Difference $ 215,487

Percentage difference 22%

R Company concludes that the restructured debt represents an extinguishment under the 10% cash ﬂow test, as the

percentage difference is at least 10%. R Company performed the cash ﬂow test analysis by performing the steps below.

28 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step B1.1: Determine the terms of the old debt and the new debt

Old Debt New Debt

Face Amount $1,000,000 $1,900,000

Contractual Interest Rate 8% 12%

Issuance/Restructure Date 01/01/2019 01/01/2022

Terms Date Amount Amount

Debt 01/01/2019 $1,000,000

Debt Discount (fees paid to the creditor) 01/01/2019 -$50,000

Debt Issue Costs (fees paid to third parties) 01/01/2019 -$40,000

Annual Interest Payment 12/31/2019-12/31/2023 -$80,000

Remaining Unamortized Debt Discount (fees paid to the

creditor) and Debt Issue Costs (fees paid to third parties)

01/01/2022 -$42,800

Additional Debt 01/01/2022 $900,000

Debt Issue Costs (fees paid to third parties) -$45,000

Debt Discount (fees paid to the creditor) 01/01/2022 -$60,000

Principal Payment 12/31/2023 -$1,000,000

Annual Interest Payment 12/31/2022-12/31/2026 -$228,000

Principal Payment 12/31/2026 -$1,900,000

Step B1.2: Calculate the effective interest rate of the old debt

Include in the calculation interest payments at the contractual interest rate, debt issue costs (fees paid to third parties),

and debt discount (fees paid to the creditor).

R Company uses TValue as shown in the attached ﬁle and the schedule below to determine that the annual effective

interest rate on the old debt is 10.405%:

Compound Period: Annual

Nominal Annual Rate: 10.405 %*

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2019 1,000,000 1

2 Loan 01/01/2019 50,000- 1

3 Loan 01/01/2019 40,000- 1

4 Payment 12/31/2019 80,000 5 Annual 12/31/2023

5 Payment 12/31/2023 1,000,000 1

*calculated by TValue

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE DE.1  10% CASH FLOW TEST  EXTINGUISHMENT CONTINUED

Step B1.3a: Determine the PV of the remaining cash ﬂows of the old debt using the effective interest rate of the

old debt

R Company calculates the present value of the cash ﬂows remaining to be paid to the creditor using the effective

interest rate of the old debt to be $958,734:

Compound Period: Annual

Nominal Annual Rate: 10.405 %*

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Payment 01/01/2022 958,734* 1

2 Payment 12/31/2022 80,000 2 Annual 12/31/2023

3 Payment 12/31/2023 1,000,000 1

*calculated by TValue

Step B1.3b: Determine the PV of the cash ﬂows of the new debt using the effective interest rate of the old debt

R Company calculates the present value of the cash ﬂows to be paid to the creditor on the new debt using the effective

interest rate of the old debt to be $1,174,221:

Compound Period: Annual

Nominal Annual Rate: 10.405 %*

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 1,174,221* 1

2 Loan 01/01/2022 900,000 1

3 Loan 01/01/2022 60,000- 1

4 Payment 12/31/2022 228,000 5 Annual 12/31/2026

5 Payment 12/31/2026 1,900,000 1

*calculated by TValue

Step B1.4: Calculate the percentage difference of the PV of the cash ﬂows of the new debt and the PV of the

remaining cash ﬂows of the old debt

Percentage difference – 1,174,221/958,734 = 123%, 22% different

R Company concludes that the restructured debt represents an extinguishment as the change was at least 10%.

R Company continues to Steps B123.1-4 Extinguishment.

30 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step B123.E: Extinguishment

Step B123.1E: Determine the fair value of the new debt

In accordance with ASC 470-50-40, R Company will record the new debt at fair value. The company determines its fair

value interest rate to be 14% given quotes it received from other lenders before proceeding with the loan from Lender,

Inc. R Company refers to the interest and principal cash ﬂow payments of the new debt to calculate the fair value of the

debt at its fair value interest rate to be $1,770,139:

New Debt at Fair Value

Fair Value Interest Rate 14%

Issuance/Restructure Date 01/01/2022

Type of Cash Flows Date Amount

Annual Interest Payment 12/31/2022 -12/31/2026 -$228,000

Principal Payment 12/31/2026 -$1,900,000

Compound Period: Annual

Nominal Annual Rate: 14.000 %*

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 1,770,139* 1

2 Payment 12/31/2022 228,000 5 Annual 12/31/2026

3 Payment 12/31/2026 1,900,000 1

*calculated by TValue

Step B123:2E: Prepare the entry to write off the old debt and record the new debt

Refer to the Facts and B123.1E for the amounts and see Excel schedule below for details.

a. Write off the unamortized debt discount/premium (fees paid to/received from the creditor) and debt issue costs

(fees paid to third parties) associated with the old debt

The unamortized discount and debt issue costs associated with the old debt of $42,800 are written off to expense.

b. Capitalize the new debt issue costs (fees paid to third parties)

Debt issue costs are capitalized when a debt extinguishment has occurred. Consequently, the Company capitalized

debt issue costs of $45,000 which it paid in cash.

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE DE.1  10% CASH FLOW TEST  EXTINGUISHMENT CONTINUED

c. Write off the old debt and record the new debt at fair value

 Because the debt is recorded at fair value, any debt discount/premium (fees paid to/received from the

creditor) is not separately presented.

The old debt is written off at its face amount of $1,000,000. The new debt is recorded at cash of $900,000 and a

debt with a fair value of $1,770,139 (Face of $1,900,000 less a discount of $129,861). The difference of $129,861

is recorded as a gain on debt extinguishment and netted with the other amounts written off. The fee paid to the

creditor of $60,000 upon issuance of the new debt is written off (netted with the gain on debt extinguishment)

since the debt is recorded at fair value.

 How does the entry differ if the lender is a related party?

If the lender is a related party as deﬁned under ASC 850-10-20, then gain upon extinguishment is recorded as a

capital transaction to APIC. Refer to footnote 1 above.

R Company summarizes these entries and records the gain on extinguishment as the difference:

January 1, 2022 – Date of Extinguishment

c. Dr Old Debt $1,000,000

b. Dr Debt Issue Costs - new debt $ 45,000

c. Dr Cash $ 795,000

c. Dr Debt Discount - fv $ 129,861

a. Cr Debt Issue Costs and

Debt Discount – old debt $ 42,800

c. Cr New Debt $1,900,000

c. Cr Gain on Debt Extinguishment $ 27,061

Step B123.3E: Calculate the effective interest rate of the new debt

R Company calculates the effective interest rate of the new debt using TValue to be 14.738%. Note, since the fee paid

to the creditor of $60,000 has been written off upon extinguishment, this fee is not included in the effective interest

rate calculation:

New Debt at Fair Value

Fair Value Interest Rate 14.738%

Issuance/Restructure Date 01/01/2022

Type of Cash Flows Date Amount

Debt 01/01/2022 $1,770,139

Debt Issue Costs 01/01/2022 -$45,000

Annual Interest Payment 12/31/2022-12/31/2026 -$228,000

Principal Payment 12/31/2026 -$1,900,000

32 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Compound Period: Annual

Nominal Annual Rate: 14.738 %*

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 1,770,139 1

2 Loan 01/01/2022 45,000- 1

3 Payment 12/31/2022 228,000 5 Annual 12/31/2026

4 Payment 12/31/2026 1,900,000 1

*calculated by TValue

AMORTIZATION SCHEDULE - Normal Amortization

Date Loan Payment Interest Principal Balance

Loan 01/01/2022 1,779,139 1,770,139

Loan 01/01/2022 45,000- 0 0 1,725,139

1 12/31/2022 228,000 253,553 25,553- 1,750,692

2 12/31/2023 228,000 258,016 30,016- 1,780,708

3 12/31/2024 228,000 262,439 34,439- 1,815,147

4 12/31/2025 228,000 267,515 39,515- 1,854,662

5 12/31/2026 228,000 273,338 45,338- 1,900,000

6 12/31/2026 1,900,000 0 1,900,000 0

Step B123.4E: Prepare the entries for the remaining life of the new debt

Using the amortization schedules above, R Company prepares the following journal entries to record each year until the

debt is paid off on December 31, 2026.

December 31, 2022 Dr Interest expense $ 253,553

Cr Debt Issue Costs and

Debt Discount $ 25,553

Cr Cash $ 228,000

December 31, 2023 Dr Interest expense $ 258,015

Cr Debt Issue Costs and

Debt Discount $ 30,015

Cr Cash $ 228,000

December 31, 2024 Dr Interest expense $ 262,439

Cr Debt Issue Costs and

Debt Discount $ 34,439

Cr Cash $ 228,000

December 31, 2025 Dr Interest expense $ 273,338

Dr Debt $1,900,000

Cr Debt Issue Costs and

Debt Discount $ 45,338

Cr Cash $2,128,000

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step B2: Has the Value of the

Embedded Conversion Option

Changed by More than 10%?

If a company exchanges debt with

the same creditor and the change

in cash ﬂows is less than 10%, the

debt still needs to be tested for

extinguishment if it includes an

embedded conversion option that

is not bifurcated and has been

amended. The new debt is considered

substantially different if the change in

fair value of the embedded conversion

option immediately before and

immediately after the modiﬁcation

is equal to or greater than 10% of

the carrying amount of the original

debt instrument immediately before

the modiﬁcation.

If such change is less than 10%,

then the debt is considered modiﬁed,

given that the company has already

concluded that the debt is modiﬁed

under the 10% cash ﬂow test. If

the debt is modiﬁed, the company

should follow Step B123M. In this

case, an increase in the fair value of

the embedded conversion option

reduces the carrying amount of the

debt instrument, increasing the debt

discount or reducing the debt

premium (fees paid to or received for

the creditor), with a corresponding

increase in additional paid-in capital.

However, a decrease in the fair value

of an embedded conversion option

resulting from a modiﬁcation should

not be recognized.

If the change in the conversion option

is greater than 10%, then the debt is

considered extinguished, and the steps

in StepB123E are followed.

EXAMPLE DM.3  10% CONVERSION OPTION VALUE

TEST  MODIFICATION

FACTS

R Company borrows $750,000 from Lender, Inc. on January 1, 2019. The debt

is convertible at a conversion price of $75 per share or 10,000 shares. Since the

company is private, the conversion options are not derivatives, and the conversion

options are not bifurcated (they cannot be net settled outside the contract). On

January 1, 2019, the fair value of the shares was $50 per share. The debt is due on

December 31, 2023 - it is issued at par, and the contractual rate of interest is 8%.

There is no discount (fees paid to the creditor) and no debt issue costs (fees paid

to third parties); interest is due annually and the principal is due at the maturity

date. There is no beneﬁcial conversion feature at the date of issuance as the

effective conversion price of $75 is greater than the fair value of $50 per share.

On January 1, 2022, Lender, Inc. agrees to extend the due date of the original debt

three years to December 31, 2026. Lender, Inc. maintains the interest rate of the

old debt, 8%. In return, R Company provides warrants to Lender for 6,667 shares

of its common stock (with a fair value of $15,263) that expire on December 31,

2031. R Company included the warrants in the 10% cash ﬂow test and determined

that the debt was modiﬁed. Further, R Company reduces the conversion price on

the debt from $75 per share to $70 per share. The company is still private and

determines that the modiﬁed conversion options should not be bifurcated.

R Company has performed Step B1 and concluded the debt is not extinguished.

ANALYSIS

Step B2: Calculate the change in fair value of the embedded conversion

option as a percentage of the carrying amount of the debt at the date

of amendment

R Company now tests to see if the change in the fair value of the embedded

conversion is equal to or greater than 10% of the carrying amount of the debt.

R Company has a third-party valuation ﬁrm perform a valuation of the conversion

option

immediately before and after the amendment. Per the valuation, the fair

value of the incremental consideration paid by R Company for the embedded

conversion option is calculated as follows, and the percentage difference is 5.2%:

Fair value of conversion option after modiﬁcation $ 589,270

Fair value of conversion option before modiﬁcation $ 550,000

Fair value of incremental consideration $ 39,270

$39, 270/ $750,000 = 5.2%

R Company concludes that since the change in the fair value of the embedded

conversion option is less than 10% of the carrying amount of the debt, the

debt is modiﬁed and NOT extinguished. R Company proceeds to perform

Step B123M.

2 The SEC staff has cautioned that companies must use the appropriate valuation models to value

conversion features and warrants. Companies can use Black-Scholes models to value conversion

options and warrants that do not have down rounds or other complex features. The staff noted

that open-form models such as a lattice, binomial, or Monte Carlo simulation must be used for

conversion features and warrants with down rounds and other timing and price adjustments.

34 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step B123.1M: Record the entry upon modiﬁcation

Step B123.1Ma: Expense the debt issues costs (fees paid to third parties) incurred to modify the debt

Debt issue costs are expensed. The Company did not incur any debt issue costs.

Step B123.1Mb: Recognize fees paid to/received from the creditor as a debt discount/premium

The fees paid to the creditor are accounted for as a debt discount. R Company paid $15,263 in warrants and $39,270 in

incremental value of the conversion options to Lender, Inc. for the debt modiﬁcation.

Dr Debt Discount $54,533

Cr APIC – Warrants $ 15,263

Cr APIC – Conversion Options $39,270

Step B123.1Mc: Record any change in the amount of the debt and cash received/paid

Since there are no other changes, the entry made is the one noted above in b.

Step B123:2M: Calculate the effective interest rate of the modiﬁed debt

The Company includes in its calculation of effective interest rate the interest payments at the contractual rate, remaining

debt issue costs (fees paid to third parties) and debt discount (fees paid to the creditor) from the old debt (if any), fees

paid to the creditor from the new debt, and the increase in the fair value of the conversion option, and determines the rate

to be 9.92%:

Effective Interest Rate 9.920%

Issuance/Restructure Date 01/01/2022

Cash Flows Date Amount

Debt 01/01/2022 $750,000

Fees paid to the creditor - Warrants 01/01/2022 -$15,263

Increase in fair value of the conversion option 01/01/2022 -$39,270

Annual Interest Payment 12/31/2022-12/31/2026 -$60,000

Loan Payment 12/31/2026 -$750,000

Compound Period: Annual

Nominal Annual Rate: 9.920 %*

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 750,000 1

2 Loan 01/01/2022 15,263- 1

3 Loan 01/01/2022 39,270- 1

4 Payment 12/31/2022 60,000 5 Annual 12/31/2020

5 Payment 12/31/2026 750,000 1

*calculated by TValue

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE DM.3  10% CONVERSION OPTION VALUE TEST  MODIFICATION CONTINUED

AMORTIZATION SCHEDULE - Normal Amortization

Date Loan Payment Interest Principal Balance

Loan 01/01/2022 750,000 750,000

Loan 01/01/2022 15,263- 0 0 734,737

Loan 01/01/2022 39,270- 0 0 695,467

1 12/31/2022 60,000 68,803 8,803- 704,270

2 12/31/2023 60,000 69,865 9,865- 714,135

3 12/31/2024 60,000 70,844 10,844- 724,979

4 12/31/2025 60,000 71,919 11,919- 736,898

5 12/31/2026 60,000 73,102 13,102- 750,000

6 12/31/2026 750,000 0 750,000 0

Step B123:3M: Prepare the entries for the remaining life of the modiﬁed debt

Using the amortization schedules above, R Company prepares the following journal entries.

December 31, 2022 Dr Interest Expense $ 68,803

Cr Debt Discount $ 8,803

Cr Cash $ 60,000

December 31, 2023 Dr Interest expense $ 69,865

Cr Debt Discount $ 9,865

Cr Cash $ 60,000

December 31, 2024 Dr Interest expense $ 70,844

Cr Debt Discount $ 10,844

Cr Cash $ 60,000

December 31, 2025 Dr Interest expense $ 71,919

Cr Debt Discount $ 11,919

Cr Cash $ 60,000

December 31, 2026 Dr Interest expense $ 73,102

Dr Debt $750,000

Cr Debt Discount $ 13,102

Cr Cash $810,000

36 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE DE.2  10% CONVERSION OPTION VALUE TEST  EXTINGUISHMENT

FACTS

R Company borrows $750,000 from Lender, Inc. on January 1, 2019. The debt is convertible at a conversion price of $45 per

share; if converted, the holder will receive 16,667 shares. The debt is not within the scope of ASC 480-10. The company is private;

consequently, the conversion options are not derivatives and are not bifurcated from the debt.

On January 1, 2019, the fair value of the shares was $50 per share. The debt is due on December 31, 2023 - it is issued at par, and

the contractual rate of interest is 8%. There is no discount (fees paid to the creditor) and no debt issue costs (fees paid to third

parties); interest is due annually and the principal is due at the maturity date.

The debt has a beneﬁcial conversion feature with an intrinsic value of $83,333 at the date of issuance. The beneﬁcial conversion

feature results at issuance date from the fair value of the share of $50, being greater than effective conversion price of $45, and is

calculated as follows:

 Number of shares = 16,667 = ($750,000/$45)

 Beneﬁt per shares = $5 = ($50-$45=$5)

 Total beneﬁcial conversion feature = $83,333 = (16,667 * $5)

On January 1, 2022, Lender, Inc. agrees to extend the due date of the original debt three years to December 31, 2026. Lender, Inc.

maintains the interest rate of the old debt, 8%. In return, R Company provides warrants to Lender for 6,667 shares of its common

stock (with a fair value of $15,263) that expire on December 31, 2025. R Company determines that the warrants should be

classiﬁed in equity. Also, R Company reduces the conversion price on the debt from $45 per share to $35 per share. The fair value

of the Company’s stock at the amendment date is $47. The debt is not within the scope of 480-10. The company continues as a

private entity, and the modiﬁed conversion options should not be bifurcated from the debt.

R Company has performed Step B1 and concluded the debt is not extinguished under the 10% cash ﬂow test.

ANALYSIS

Step B2: Calculate the change in fair value of the embedded conversion option as a percentage of the carrying amount of

the debt at the date of amendment

R Company now tests to see if the change in the fair value of the embedded conversion is equal to or greater than 10% of

the carrying amount of the debt. R Company has a third party valuation ﬁrm perform a valuation of the conversion option

immediately before and after the amendment. Per the valuation, the fair value of the incremental consideration paid by R

Company for the embedded conversion option is calculated as follows:

Fair value of conversion option after modiﬁcation $1,475,000

Fair value of conversion option before modiﬁcation $1,395,000

Fair value of incremental consideration $ 80,000

Percentage change as a result of the change in conversion price $80,000/$750,000 = 10.67%

R Company concludes that since the change in the fair value of the embedded conversion option is greater than 10% of the

carrying amount of the debt, the debt is extinguished.

R Company proceeds to perform Step B123E.

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE DE.2  10% CONVERSION OPTION VALUE TEST  EXTINGUISHMENT CONTINUED

Step B123.E: Extinguishment

Step B123.1E: Determine the fair value of the new debt

The valuation ﬁrm concludes that, the fair value of R Company’s new debt is $1,475,000. There is no separate impact

from the change in conversion rate as this change is built into the increase in the fair value of the debt.

R Company refers to ASC 470-20-25-13 which states. “…if a convertible debt instrument is issued at a substantial

premium, there is a presumption that such premium represents paid-in capital.” Since the face amount of the debt is

$750,000, R Company concludes that the $725,000 premium is substantial, and records that premium to additional paid-

in capital with the offset as a loss on extinguishment.

Step B1231Ei: If the convertible debt has a beneﬁcial conversion feature at the issuance date, record the reacquisition

of the BCF

If the debt does have a beneﬁcial conversion feature at issuance and the debt is extinguished before conversion, the

beneﬁcial conversion feature is deemed reacquired at its intrinsic value at the date of extinguishment. Note that

reacquisition of the beneﬁcial conversion feature cannot and does not occur if there is no beneﬁcial conversion feature

at issuance date. There is no reacquisition even if the conversion feature becomes and stays beneﬁcial through the

extinguishment date.

On the date of extinguishment, R Company’s convertible debt includes a beneﬁcial conversion feature that has an

intrinsic value of $33,333 = (16,666*($47-$45)). R Company records the reacquisition of the BCF as a reduction in APIC.

The company allocates total consideration of $1,475,000, less the extinguishment date intrinsic value of the beneﬁcial

conversion feature of $33,333, or $1,441,667 to the extinguished convertible debt instrument.

R Company calculates the gain (or loss) as the difference between the consideration allocated to the convertible debt

and the carrying amount of the convertible debt instrument at the extinguishment date. The amortized carrying amount

of the debt at January 1, 2022 is $737,149 and represents the debt of $750,000, less the BCF issuance date discount of

$83,333, plus the amortized discount for two years at an effective interest rate of 8.974% of $70,482 ($64,839+$5,643).

R Company’s loss on the extinguishment of its convertible debt is therefore ($1,475,000-$737,149)+ $15,263 warrants –

$33,000 reacquisition of the BCF or $719,781.

The Emerging Issues Task Force (EITF) raised and discussed the above method of accounting for the reacquisition of a BCF

upon extinguishment of convertible debt in EITF 00-27, but never ﬁnalized the issue. Nonetheless, we believe this method

of accounting for the reacquired BCF is appropriate and generally accepted as the correct model.

Step B123:2E: Prepare the entry to write off the old debt and record the new debt

Refer to Facts and B123.1E and B123.1Ei for the amounts and see Excel schedule for details.

38 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

a. and b. Not applicable.

c. Write off the old debt and record the new debt at fair value

The Company writes off the face amount of the old debt for $750,000 and records the new debt at $750,000, its

fair value of $1,475,000 less the premium recorded in APIC of $725,000. This difference of $725,000 is recorded as a

component of the loss on debt extinguishment. The fee paid to the creditor, the $15,263 of warrants, is written off and

added to the loss on extinguishment.

January 1, 2016 – Date of modiﬁcation

Dr a Debt $ 737,149

Dr b Loss on extinguishment $719,781

Dr c APIC – Reacquisition of BCF $ 33,333

Cr d APIC – Premium on debt $ 725,000

Cr e APIC – Warrants $ 15,263

Cr d Debt $750,000

Step B123.3E: Calculate the effective interest rate of the new debt

The contractual interest rate of 8% is the same as the effective interest rate as there are no fees paid to the creditor or

debt issue costs (fees paid to third parties).R Company refers to ASC 470-20-25-13 which states. “…if a convertible debt

instrument is issued at a substantial premium, there is a presumption that such premium represents paid-in capital.”

Since the face amount of the debt is $750,000, R Company concludes that the $725,000 premium is substantial, and

records that premium to additional paid-in capital with the offset as a loss on extinguishment.

Step B123.4E: Prepare the entries for the remaining life of the new debt

R Company prepares the following journal entries to record each year until the debt is paid off on December 31, 2020.

December 31, 2022 Dr Interest expense $ 60,000

Cr Cash $ 60,000

December 31, 2023 Dr Interest expense $ 60,000

Cr Cash $ 60,000

December 31, 2024 Dr Interest expense $ 60,000

Cr Cash $ 60,000

December 31, 2025 Dr Interest expense $ 60,000

Cr Cash $ 60,000

December 31, 2026 Dr Debt $750,000

Dr Interest expense $ 60,000

Cr Cash $810,000

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step B3: Has a Substantive Conversion Option Been

Added or Eliminated?

Under ASC 470-50-40-10, debt is extinguished if a company

amends debt with the same creditor by adding or eliminating a

substantive conversion option. A substantive conversion option

is deﬁned in ASC 470-20-40-7 as a conversion feature that is

reasonably possible of being exercised in the future absent the

issuer’s exercise of a call option. Reasonably possible is deﬁned

by reference to ASC 450-10, Contingencies.

When evaluating whether a conversion option is substantive,

the debtor should consider the following factors based on ASC

470-20-40-9. For purposes of this evaluation, the holder’s

intent is NOT considered:

1. The fair value of the conversion option relative to the

fair value of the debt instrument. The higher the relative

percentage, the more likely it is that the conversion option

is substantive.

2. The effective annual interest rate per the terms of the

debt instrument relative to the estimated effective

annual rate of a nonconvertible debt instrument with

an equivalent expected term and credit risk. The lower

the relative percentage, the more likely it is that the

conversion option is substantive.

3. The fair value of the debt instrument relative to an

instrument that is identical except for which the

conversion option is not contingent. A comparison of

the fair value of the debt instrument to the fair value

of an identical instrument for which conversion is not

contingent isolates the effect of the contingencies and

may provide evidence about the substance of a

conversion feature.

4. A qualitative evaluation of the conversion provisions.

The nature of the conditions under which the instrument

may become convertible may provide evidence that the

conversion feature is substantive.

The assessment of whether the conversion feature is

substantive should be based on assumptions, considerations,

and market data that is available as of the issue date.

In the following fact patterns, R Company has already

performed Steps B1 and B2, and the company has preliminarily

concluded that the debt has not been extinguished. The

company proceeds to test the change in debt under Step

B3. Note that in this fact pattern, R Company could have

performed Step B3 ﬁrst.

40 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

ANALYZE WHETHER A CONVERSION OPTION IS SUBSTANTIVE

FACTS  CONVERSION OPTION NOT SUBSTANTIVE

R Company issues $1,000,000 of debt to Lender, Inc. on

January 1, 2019 that is due on December 31, 2023. The

8% interest is due annually and the principal amount is

due with the ﬁnal payment on December 31, 2016. On

November 30, 2023, R Company negotiates a one-year

extension to the debt with UO Company. The interest rate

remains unchanged, R Company does not pay any fees to

UO or to third parties, but does add a conversion option

to the debt. On November 30, the company’s stock was

trading at $3.00 a share and the conversion option is priced

at $20.00 per share.

ANALYSIS  CONVERSION OPTION NOT SUBSTANTIVE

R Company concludes that the conversion option is not

substantive based on its consideration of the four factors

noted above. Therefore the debt is considered modiﬁed.

The entry made upon modiﬁcation and the entries for the

remaining life of the debt are not presented here.

FACTS  CONVERSION OPTION IS SUBSTANTIVE

R Company issues $10,000,000 of debt to Lender, Inc. on

January 1, 2021 that is due on December 31, 2025. The

8% interest is due annually and the principal amount is

due with the ﬁnal payment on December 31, 2025. On

November 30, 2024, R Company negotiates a two-year

extension to the debt with Lender, Inc. The interest rate

remains unchanged. R Company does not pay any fees to

Lender or to third parties, but does add a conversion option

to the debt. On November 30, the company’s stock was

trading at $5 per share and the conversion option is priced

at $6 per share.

ANALYSIS  CONVERSION OPTION IS SUBSTANTIVE

R Company concludes that the conversion option is

substantive because it is reasonably likely of being

exercised before the debt matures and the option expires.

The company believes that it is reasonably likely that its

share price will be greater than $6 in less than two years,

and therefore the conversion option will be exercised.

R Company consequently concludes that the debt is

extinguished. The company will write off the old debt and

record the new debt at fair value, the difference will be

recorded as a gain or loss upon debt extinguishment in the

statement of operations. The entry upon extinguishment is

not presented here.

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

STEP C: HAS THE REVOLVING DEBT OR LINEOFCREDIT BEEN MODIFIED OR EXCHANGED?

A revolving-debt arrangement or a line-of-credit arrangement

(hereafter both are referred to as an LOC) is an agreement that

provides the debtor company with the option to make multiple

borrowings or draw downs up to a given maximum amount, to

repay part of previous borrowings, and to then borrow again

under the same contract. LOCs may include both amounts

drawn by the borrowing company (debt) and a commitment

by the creditor to make additional amounts available to the

company under deﬁned terms (loan commitment).

The analysis of amendments to LOCs is different than

that summarized above for analyzing modiﬁcations/

extinguishments of term loans. Borrowing capacity (amount

of LOC multiplied by the remaining term, on an undiscounted

basis) is the key used to determine the accounting for a

modiﬁcation to or exchange of an LOC.

Under ASC 470-50-40-21, borrowing capacity is analyzed

when a debtor amends its LOC with the same creditor by:

1. Calculating the borrowing capacity of the old arrangement

by multiplying the remaining term by the maximum

available credit of the LOC; and

2. Calculating the borrowing capacity of the new

arrangement by multiplying the term by the maximum

available credit of the new LOC.

If the borrowing capacity of the new LOC is greater than or

equal to that of the old LOC, then the debtor should defer and

amortize over the life of the new LOC any debt issue costs

(fees paid to third parties) and unamortized discount/premium

(fees paid to/received from the creditor) associated with the

old arrangement in addition to debt issue cost and discount/

premium associated with the new arrangement.

If the borrowing capacity of the old LOC is less than the

borrowing capacity of the new LOC, then any debt issue costs

and unamortized discounts/premiums associated with the

old arrangement are written off in proportion to the reduction

in borrowing capacity. The debt issue costs and unamortized

discount/premium remaining after the proportional write

off, plus the debt issue costs and debt discount/premium

associated with the new arrangement are deferred and

amortized over the life of the new LOC.

It is interesting to note that the model for treatment of

third-party costs and lender fees for changes in the borrowing

capacity of LOCs differs from that of term loans.

Since LOCs can have zero balances, discounts and deferred

issuance costs are classiﬁed as assets rather than as contra-

liabilities. Also, the discounts and deferred issuance costs

are amortized ratably over the term of the LOCs as effective

interest rates cannot be calculated. The FASB did not address

this issue in ASU 2015-03, Simplifying the Presentation of

Debt Issuance Costs, the update that reclassiﬁed term debt

issuance costs from assets to contra-liabilities. Consequently,

the SEC observer addressed this issue at the June 18, 2015

EITF meeting. The staff stated that it would not object to a

company deferring and presenting lender fees and third-party

costs as an asset and amortizing the costs ratably over the

term of the LOC. The SEC staff announcement left practice for

LOC discounts and deferred costs classiﬁcation and method of

amortization unchanged.

42 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

ANALYZE A CHANGE IN A LOC

FACTS

R Company established a three-year LOC arrangement on

September 30, 2020 with UR Bank under which R can draw

up to $10 million at an interest rate of 8% per annum on

outstanding amounts. R Company incurred $33,000 in

third party costs to establish the line and paid the bank a

line origination fee of $45,000. R is amortizing the costs

and fees on a straight line basis over the life of the line. On

September 30, 2022, R Company accepts a reduction of

the line to $5 million for the last year of the line in return

for a reduction in interest to 5% per annum. R Company

incurs $25,000 in third-party costs in association with

the LOC modiﬁcation and pays the bank a $12,000 fee.

On September 30, 2022, R Company has $1.5 million

outstanding on the LOC and $11,000 of unamortized debt

issue costs (fees paid to third parties) and $15,000 of

unamortized discount (fees paid to the creditor).

ANALYSIS

R Company calculates the borrowing capacity under both

the old and the new LOC arrangements:

Old borrowing capacity = 1 year * $10 million = $10 million

New borrowing capacity = 1 year * $5 million = $5 million

The borrowing capacity of the new arrangement is 1/2

(change in borrowing capacity divided by the original

borrowing capacity) that under the old arrangement. R

Company writes off 1/2 of the unamortized debt issue

costs (fees paid to third parties) ($11,000/2 = $5,500) and

discount (fees paid to the creditor) ($15,000/2 = $7,500).

The remaining debt issue costs of $5,500 are combined

with the issuance costs of $25,000 for a total of $30,500

associated with the new arrangement and amortized over

one year, the remaining life of the LOC. The remaining

unamortized discount of $7,500 is combined with the

$12,000 in bank fees associated with the new arrangement

for a total of $19,500 and amortized over one year, the

remaining life of the LOC.

ANALYZE LOAN MODIFICATIONS AND CHANGES IN LOAN FORM IN A BANK SYNDICATE  LOCS

AND TERM LOANS

Generally an investment banker, or a bank acting as a syndicate administrator, arranges a loan syndicate and any modiﬁcations

to the syndicate loans. When loans in a syndicate are modiﬁed, the lenders in the syndicate may increase or decrease the amount

outstanding, and lenders may enter or exit the syndicate. A syndicate modiﬁcation may also involve a change in the form of the loans

from term to LOC, from LOC to term, or shifts in amounts from term to LOC.

When syndicated loans are modiﬁed, borrowers follow the following four steps:

1. Analyze the original and new syndicate members

a. Identify the continuing, entering, and exiting lenders.

b. Identify changes in loan amount, form, and

maturity date.

2. Allocate the new lender fees (loan discount) and third-

party costs (deferred issuance costs)

a. Use an approach to allocate to individual lending

arrangements that is reasonable and documented.

b. Allocate the deferred issuance costs and debt

discount separately, as the two are treated in a

different manner in modiﬁcation and extinguishment.

3. Determine whether the loans have been modiﬁed

or extinguished

a. Determine the appropriate testing and

accounting model.

b. Test for modiﬁcation/extinguishment.

c. Account for original unamortized and new deferred

issuance costs and loan discounts as appropriate for

the modiﬁcation/extinguishment conclusion.

4. Identify the new syndicate members

a. Capitalize costs associated with lenders that are new

to the syndicate.

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step 1 - Analyze the original and new syndicate members

First a borrower analyzes the original and new syndicate members. Then, a borrower identiﬁes changes in loan amount and form.

For example

Lender

Original

Loan Form

Original

Maturity Date

Amended

Loan Form

New Maturity

Date

Original Loan Amount

in millions

Amended Loan

Amount in millions

Bank 1 Term 12/31/21 Term 12/31/25 $1 $1.5

Bank 2 LOC 12/31/21 LOC 12/31/25 $5 $10

Bank 3 LOC 12/31/21 Term 12/31/25 $2 $4

Bank 4 Term 12/31/21 LOC 12/31/25 $3 $3

Bank 5 Term 12/31/21 $4 -

Bank 6 Term 12/31/25 - $5

In this example, each bank lender is a distinct, unrelated bank

entity. However, we have seen examples in which the lenders

are individual funds of the same asset manager. Judgment

should be applied to determine if individual funds managed

by the same asset manager are one combined creditor or

individual creditors. Companies with related fund creditors

should consider factors including: (1) a fund’s structure and

management, including the parties responsible for negotiating

changes in any terms (2) who the general partner is, and (3)

whether the funds are under common control.

If the lenders in our example had been X Fund LP, Y Fund LP,

Q Fund LP, and Bank AB, the company would assess its

multiple lenders to determine if the funds were managed

by the same general partner and whether that general

partner is the decision maker for the funds. Upon

investigation, the company determines that X and Y Fund

are managed by the same asset manager, Alphabet Funds.

Alphabet makes the decisions for the two funds and manages

them with the same asset parameters. Q Fund LP is managed

by an unrelated entity as is Bank AB. The company determines

that Fund X and Y are actually one entity because there is one

general managing partner for the two funds, and the manager

has the same investment objectives for the two funds. The

company also determines that Q Fund LLP and Bank AB are

individual creditors that are unrelated to each other and to

Alphabet Funds. In this fact pattern, the company concludes

that there are 3 lenders in the syndicate, (1) Alphabet Funds X

and Y, (2) Q Fund LLP, and (3) Bank AB.

We return to our original Example in which Banks 1 through 6

are a syndicate that lends funds to R Company.

44 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step 2 - Allocate the new lender fees and third-party costs

Next, a borrower allocates fees paid to the lenders. Fees

include the following lender and third- party costs:

1. Lender - Fees for the individual bank’s continuing

participation or entry into the syndicate. In certain

syndicates, not all lenders will receive these fees. Lender

fees are also termed loan discounts;

2. Lender - Fees for the beneﬁt of all the lenders in the

syndicate; and

3. Third party - Fees, often negotiated by the investment

banker or syndicate administrator, for the formation and

administration of the syndicate. Third party fees are also

termed deferred issuance costs; and

4. Third party – Fees for attorneys and accountants.

The ﬁrst type of fee is allocated solely to the individual

lender. The second type is allocated to each bank in the new

syndicate using a rational approach (e.g., generally allocated

pro rata based on the lender’s share of the total syndicated

borrowings). The unamortized lender fees from the original

term debt will continue to be amortized for modiﬁed debt, and

expensed for extinguished term debt.

Fees on the modiﬁed debt associated with continuing lenders

are expensed or capitalized depending on whether the term

debt is extinguished or modiﬁed, respectively. For a LOC, if the

borrowing capacity is increased, the lender fees are capitalized.

If the borrowing capacity for a LOC decreases, the unamortized

lender fees are written off on a pro rata basis.

Fees paid to third parties are also allocated to each bank in

the new syndicate using a rational approach. Frequently, the

bank acting as the investment banker is also a lender in the

syndicate. The borrower should consider whether fees paid

to the investment bank are being paid for third-party services

or as a lender fee. The role of the bank as investment banker

and\or lender is clear from the loan documentation, and the

borrower should categorize the fees accordingly. Third party

fees are expensed for modiﬁed term debt and capitalized

for extinguished term debt. For a LOC, new third-party fees

and lender fees are capitalized. If the new LOC has greater

borrowing capacity, no fees are expensed. If the new LOC has

less borrowing capacity, unamortized third-party costs are

written off on a pro rata basis.

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step 3 – Determine whether the loans have been modiﬁed or extinguished

First a borrower determines the appropriate model for testing the change in debt. While this scenario is not speciﬁcally addressed in

the Codiﬁcation, we believe the following approaches are reasonable in which a borrower chooses the model that applies to the loan

in its original form. If the loan was originally a term loan and became an LOC, a borrower applies the 10% cash ﬂow test. If the loan

was originally an LOC and became a term loan, a borrower applies the borrowing capacity test.

Lender

Before

Change

After

Change Test Model

Continuing Term Term 10% cash ﬂow

Continuing LOC LOC Borrowing capacity

Continuing LOC Term Borrowing capacity

Continuing Term LOC 10% cash ﬂow

A borrower applies the extinguishment model to lenders that do not continue in the syndicate as term or LOC lenders. Consequently,

unamortized debt issuance costs and debt discounts/premiums associated with the non-continuing lenders are written off at the

time of the change.

Lender

Before

Change

After

Change

Accounting

Model

Non-Continuing Term - Extinguishment

Non-Continuing LOC - Extinguishment

When the borrower applies the above to the example in Step 1, it concludes the following:

Lender

Original

Loan Form

Original

Maturity

Date

Amended

Loan Form

New

Maturity

Date

Original

Loan

Amount in

millions

Amended

Loan

Amount in

millions

Test

Model

Accounting

Model

Bank 1 Term 12/31/21 Term 12/31/25 $1 $1.5 10% test

Bank 2 LOC 12/31/21 LOC 12/31/25 $5 $10 Borrowing

capacity

Bank 3 LOC 12/31/21 Term 12/31/25 $2 $4 Borrowing

capacity

Bank 4 Term 12/31/21 LOC 12/31/25 $3 $3 10% test

Bank 5 Term 12/31/21 $4 - Extinguishment

Bank 6 Term 12/31/25 - $5 New Loan

46 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step 4 - Analyze the original and new syndicate members

The borrower identiﬁes Bank 6 as a new lender in the syndicate in Step 4.

EXAMPLE SYN1 LOAN AMENDMENTS IN A SYNDICATE

FACTS

R Company has a term loan and LOC syndicate. The debt is not callable or puttable. When R Company entered into the

loan\LOC syndicate in 2019, its product has just begun to be accepted by the market. Now R Company has a strong market

presence with the product and has shown impressive revenue growth. Consequently, the Company’s credit rating has

improved, and when the Company began negotiating an increase in loan and LOC balance with the syndicate banks, the

interest rate under discussion on the credit was either the same or lower than the original interest rate. The Company did not

incur any prepayment fees but did have third party and lender fees associated with the amended\new term loans and LOCs.

The changes in the syndicate are presented in the following table. The lenders agreed to accept all principal payments at the

new maturity date.

Step 1: R Company analyzes the original and new syndicate members:

OLD DEBT – ISSUED 9/30/19, DUE 9/30/22 NEW DEBT – MODIFIED 9/30/21

Third Party

Fees

Lender

Fees

Interest

Rate Form Amount

Third

Party Fees

Lender

Fees

Interest

Rate Form Amount

Bank A $33,000 $45,000 8% LOC $10 million 5% Term $5 million

Bank B $20,000 $30,000 8% Term $750,000 8% LOC $1.125 mil

Bank C $40,000 $50,000 10% Term $1,000,000 N/A N/A -

Bank D - - N/A N/A - 8% Term $1.9 mil

Total $100,000 $500,000

Step 2 – R Company allocates the new lender fees and third-party costs based on each lender’s percentage of the total

debt outstanding.

FEES PAID UPON DEBT MODIFICATION ON 9/30/2021

Third Party Fees Lender Fees

Loans

Loans –

Percentage

of Total

Fees by Lender -

Percentage Applied

to Total Fees

Fees by Lender -

Percentage Applied

to Total Fees

Total Lender and

Third-Party Fees

Bank A $5,000,000 62% $62,000 $310,000 $372,000

Bank B $1,125,000 14% $14,000 $70,000 $84,000

Bank C - N/A - - -

Bank D $1,900,000 24% $24,000 $120,000 $144,000

Total $8,025,000 $100,000 $500,000 $600,000

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE SYN1 LOAN AMENDMENTS IN A SYNDICATE CONTINUED

Before performing Step 3, R Company calculates the unamortized third party fees and lender fees remaining at the debt

amendment date:

UNAMORTIZED FEES AT 9/30/2021

Fees at 9/30/19

Method of

Amortization

Unamortized Fees at

9/30/21

Total Unamortized

Fees at 9/30/21

Third Party Fees Lender Fees

Third

Party Fees Lender Fees

Bank A $33,000 $45,000 Straight Line $11,000 $15,000 $26,000

Bank B $20,000 $30,000 Eff. Int. Method $7,400 $11,000 $18,400

Bank C $40,000 $50,000 Eff. Int. Method $15,100 $18,900 $34,000

Bank D - - - - -

Total $33,500 $44,900 $78,400

ANALYSIS

Bank A – LOC to Term Loan Modiﬁcation

Step 3: Determine whether the LOC with Bank A has been modiﬁed or extinguished

First, R Company determines the appropriate testing model. R concludes that the borrowing capacity test is appropriate as the

loan originally was a LOC before it became a term loan, and accordingly assesses the loan modiﬁcation:

Old borrowing capacity = 1 year remaining * $10 million = $10 million

New borrowing capacity = 4 years * $5 million = $20 million

Conclusion: The borrowing capacity under the new term loan is greater than the borrowing capacity of the old LOC, and

consequently the change in the loan is determined to be a modiﬁcation.

Fee amortization: The remaining unamortized fees from the original LOC of $26,000 are added to the new loan fees of

$372,000. The total fees of $398,000 are amortized over the life of the modiﬁed loan, now term debt, using the effective

interest method.

BANK A  FEES TO BE AMORTIZED AT 9/30/19

BANK A  FEE AMORTIZATION BY YEAR,

FOR YEARS ENDING 9/30

Unamortized Fees

from Old Loan

Fees from

New Loan

Total to Be

Amortized

Effective Yield

of New Debt 2022 2023 2024 2025 Total

$26,000 $372,000 $398,000 7.37% $89,152 $95,722 $102,776 $110,350 $398,000

48 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step 3: Determine whether the term loan with Bank B has been modiﬁed or extinguished

First, R Company determines the appropriate testing model. R concludes that the 10% cash ﬂow test is appropriate as the loan

originally was a term loan before the loan became an LOC, and accordingly assesses the loan modiﬁcation:

Step B1.1: What are the terms of R’s old debt and new debt?

Old Debt Term New Debt LOC

Face Amount $750,000 $1,125,000

Contractual Interest Rate 8% 8%

Issuance/Restructure Date 09/30/2019 09/30/2021

Type of Cash Flows Date Amount Amount

Debt 09/30/2019 $750,000

Debt Discount (fees paid to the creditor) 09/30/2019 -$30,000

Debt Issue Costs (fees paid to third parties) 09/30/2019 -$20,000

Annual Interest Payment 09/30/2020-

09/30/2022

-$60,000

Unamortized Debt Discount (fees paid to the creditor)

and Debt Issue Costs (fees paid to third parties)

09/30/2021 -$18,400

Additional to LOC 09/30/2021 $375,000

Debt Discount (fees paid to the creditor) 09/30/2021 -$70,000

Debt Issue Costs (fees paid to third parties) 09/30/2021 -$14,000

Annual Interest Payment 09/30/2022 -$90,000

Reduction in LOC (a) 09/30/2022 -$100,000

Principal Payment 09/30/2022 -$750,000

Annual Interest Payment 09/30/2023 -$88,400

Addition to LOC (a) 09/30/2023 $100,000

Annual Interest Payment 09/30/2024 & 25 -$90,000

Payment of LOC (a) 09/30/2025 -$1,125,000

(a) The Company bases the estimates on its cash ﬂow needs over the life of the LOC. R Company knows that actual cash needs

may vary from this estimate.

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE SYN1 LOAN AMENDMENTS IN A SYNDICATE CONTINUED

Step B1.2: Calculate the effective interest rate of the old debt

Include in the calculation interest payments at the contractual rate of interest, debt issue costs (fees paid to third parties), and

debt discount (fees paid to the creditor).

R Company uses TValue as shown in the attached ﬁle and the schedule below to determine that the annual effective interest

rate on the old debt is 10.715%.

Step B1.3: Determine the present value of the old and new debt

Step B1.3a: Determine the PV of the remaining cash ﬂows of the old debt using the effective interest rate of the

old debt

R Company calculates the present value of the remaining cash ﬂows to the creditor for the old debt using the effective

interest rate of the old debt and TValue to be $731,608:

Step B1.3b: Determine the PV of the cash ﬂows of the new debt using the effective interest rate of the old debt

R Company calculates the present value of the cash ﬂows to the creditor for the new debt using the effective interest

rate of the old debt to be $746,096. R Company estimates the draw downs on the line for this calculation. The Company

bases the estimates on its cash ﬂow needs over the life of the LOC. R Company knows that actual cash needs may vary

from this estimate.

Step B1:4: Calculate the percentage difference of the PV of the cash ﬂows of the new debt and the PV of the remaining

cash ﬂows of the old debt

Percentage difference– 746,096/731,608 = 102%, 2% different

Conclusion: R Company concludes that the restructured debt represents a modiﬁcation as the percentage difference is less

than 10%.

Fee amortization: The remaining unamortized fees from the original LOC of $18,400 are added to the new loan fees of $84,000.

The total fees of $102,400 are amortized over the life of the modiﬁed debt, now LOC, using the straight line method.

BANK B  FEES TO BE AMORTIZED AT 9/30/21

BANK B  FEE AMORTIZATION BY YEAR,

FOR YEARS ENDING 9/30

Unamortized Fees

from Old Loan Fees from New Loan

Total to Be

Amortized 2022 2023 2024 2025 Total

$18,400 $84,000 $102,400 $25,600 $25,600 $25,600 $25,600 $102,400

$102,400/4= $25,600

50 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Bank C – Lender Exits the Syndicate

First, R Company determines the appropriate accounting model and concludes that extinguishment is the proper model. R

summarizes the terms of the old debt:

Old Debt Term New Debt LOC

Face Amount $1,000,000 $-

Contractual Interest Rate 10%

Issuance/Restructure Date 09/30/2019

Terms Date Amount Amount

Debt 09/30/2019 $1,000,000

Debt Discount (fees paid to the creditor) 09/30/2019 -$50,000

Debt Issue Costs (fees paid to third parties) 09/30/2019 -$40,000

Annual Interest Payment 09/30/2020-

09/30/2022

-$100,000

Remaining Unamortized Debt Discount (fees paid to the

creditor) and Debt Issue Costs (fees paid to third parties)

09/30/2021 $34,000

Principal Payment 09/30/2021 -$1,000,000

When a lender leaves the syndicate, the Company applies extinguishment accounting.

Step B123:2E: Prepare the entry to write off the old debt and record the new debt

d. Write off for the unamortized debt discount/premium (fees paid to/received from the creditor) and debt issue costs

(fees paid to third parties) associated with the old debt

The unamortized discount and debt issue costs associated with the old debt of $34,000 are written off to expense.

e. Capitalize the new debt issue costs (fees paid to third parties) Not applicable.

a. Write off the old debt

The old debt is written off at its carrying amount, $1,000,000. Here, the Company pays the amount in cash.

R Company summarizes these entries and records the gain on extinguishment as the difference:

September 30, 2021 – Date of Extinguishment

Dr Old Debt $1,000,000

Dr Debt Extinguishment Expense $ 34,000

Cr Debt Issue Costs and

Debt Discount – old debt $ 34,000

Cr Cash $1,000,000

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

EXAMPLE SYN1 LOAN AMENDMENTS IN A SYNDICATE CONTINUED

Bank D – Lender Enters the Syndicate – New Loan

First, R Company determines that Bank D is a new lender in the syndicate and accounts for Bank D debt as a new loan. R

summarizes the terms of the new debt:

Old Debt New Debt

Face Amount $- $1,900,000

Contractual Interest Rate 8%

Issuance/Restructure Date 09/30/2021

Terms Date Amount Amount

Debt 09/30/2021 $1,900,000

Debt Discount (fees paid to the creditor) 09/30/2021 $120,000

Debt Issue Costs (fees paid to third parties) 09/30/2021 $24,000

Annual Interest Payment 09/30/2022-09/30/2025 $152,000

Principal Payment 09/30/2025 $1,900,000

Since the debt is a loan with a new lender, the debt is recorded as a new loan:

September 30, 2021 – Date of New Loan

Dr Cash $1,756,000

Dr Debt Discount & Deferred Issuance Costs $ 144,000

Cr Debt $1,900,000

52 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

APPENDIX A

Appendix A includes two complex examples of Step B1, the 10% Cash Flow Test. These examples are based on the base cases in the

body of the Practice Aid, but include amortizing principal payments.

10% CASH FLOW TEST  AMORTIZING LOAN  MODIFICATION

FACTS

R Company borrows $750,000 from Lender, Inc. on January 1, 2019. The debt is due on December 31, 2023 - it is issued at par, the

contractual interest rate is 8% and the fee paid to the creditor (discount) is 4% of the face amount of the debt or $30,000. Debt

issue costs for lawyers and accountants amounted to $20,000. Interest and principal payments are due annually in the amount of

$187,804.

R Company records the following entry on the date it borrows the $750,000 from Lender, Inc.:

Dr Cash $ 700,000

Dr Debt Discount $ 30,000

Dr Debt Issue Costs $ 20,000

Cr Debt $ 750,000

On January 1, 2022, R Company borrows an additional $375,000 from Lender, Inc. as it needs greater liquidity to ﬁnish developing

and begin marketing a new product. Lender, Inc. agrees to extend the due date of the original debt three years and to make the

additional debt due on the same date, December 31, 2026. Lender also agrees to maintain the interest rate of the old debt, 8%. In

return, R Company provides 20,000 shares of its common stock to Lender with a fair value of $45,790. R Company pays $33,000 of

debt issue costs to its accountant and attorneys for work associated with the loan modiﬁcation. At January 1, 2022, R Company had

amortized $38,107 of the debt discount (fees paid to the creditor) and debt issue costs (fees paid to third parties); $11,893 remained

to be amortized. R Company had paid $415,095 of principal; $334,905 of principal remained to be paid on the outstanding debt. The

debt is not callable or puttable.

For simple examples see the body of the Practice Aid.

ANALYSIS

Step B1: 10% Cash Flow Test Analysis

Using the 10% cash ﬂow test, is R Company’s change in debt a modiﬁcation or extinguishment?

Present value of the remaining cash ﬂows of old debt $ 323,012

Present value of the cash ﬂows of modiﬁed debt $333,328

Difference $ 10,316

Percentage difference 3.2%

R Company concludes that the restructured debt represents a modiﬁcation under the 10% cash ﬂow test, as the percentage

difference is less than 10%. R Company performed the cash ﬂow test analysis by performing the steps below.

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step B1.1: Determine the terms of the old debt and the new debt

Old Debt New Debt

Face Amount $750,000 $709,905

($334,905 +

$375,000)

Contractual Interest Rate 8% 8%

Issuance/Restructure Date 01/01/2019 01/01/2022

Type of Cash Flows Date Amount Amount

Debt 01/01/2019 $750,000

Debt Discount (fees paid to the creditor) 01/01/2019 -$30,000

Debt Issue Costs (fees paid to third parties) 01/01/2019 -$20,000

Annual Payment (principal & interest) 12/31/2019 – 12/31/2023 -$187,804

Remaining Principal 01/01/2022 $334,905

Unamortized Debt Discount (fees paid to the creditor)

and Debt Issue Costs (fees paid to third parties)

01/01/2022 -$11,900

Additional Debt 01/01/2022 $375,000

Debt Discount (fees paid to the creditor) - Warrants 01/01/2022 -$45,790

Debt Issue Costs (fees paid to third parties) 01/01/2022 -$33,000

Annual Payment (principal & interest) 12/31/2022 - 12/31/2026 -$177,800

Payment Terms – Old Debt

R Company has been given a payment and amortization schedule from Lender, Inc. for the original debt of $750,000. R Company

uses TValue to check the schedule, and it is shown in the attached ﬁle and below. R Company notes that the amount of the debt

principal remaining at January 1, 2022 is $334,905 and the annual principal and interest payment is $187,804:

Compound Period: Annual

Nominal Annual Rate: 8.000 %

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2019 750,000 1

2 Payment 12/31/2019 187,804* 5 Annual 12/31/2023

*calculated by TValue

AMORTIZATION SCHEDULE - Normal Amortization

Date Loan Payment Interest Principal

Loan 01/01/2019 750,000

1 12/31/2019 187,804 59,836 127,969 622,031

2 12/31/2020 187,804 49,763 138,042 483,990

3 12/31/2021 187,804 38,719 149,085 334,905

4 12/31/2022 187,804 26,792 161,012 173,893

5 12/31/2023 187,804 13,911 173,893 0

54 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Payment Terms –New Debt

R Company checks the payment and amortization schedule of the new debt provided by Lender, Inc. This payment schedule includes

both the remaining principal of the old debt of $334,905 and the new debt of $375,000, and calculates the annual principal and

interest payment to be $177,764:

Compound Period: Annual

Nominal Annual Rate: 8.000 %

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 334,905 1

2 Loan 01/01/2022 375,000 1

3 Payment 12/31/2022 177,764* 5 Annual 12/31/2026

*calculated by TValue

AMORTIZATION SCHEDULE - Normal Amortization

Date Loan Payment Interest Principal Balance

Loan 01/01/2022 334,905 334,905

Loan 01/01/2022 375,000 0 0 709,905

1 12/31/2022 177,764 56,637 121,127 588,778

2 12/31/2023 177,764 47,102 130,662 458,116

3 12/31/2024 177,764 36,649 141,115 317,001

4 12/31/2025 177,764 25,360 152,404 164,596

5 12/31/2026 177,764 13,168 164,596 0

Step B1.2: Calculate the effective interest rate of the old debt

Include in the calculation interest payments at the contractual rate of interest, debt issue costs (fees paid to third parties), and debt

discount (fees paid to the creditor).

R Company uses TValue as shown in the attached ﬁle and the schedule below to determine that the annual effective interest rate

is 10.675%:

Compound Period: Annual

Nominal Annual Rate: 10.675%*

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2019 750,000 1

2 Loan 01/01/2019 -30,000 1

3 Loan 01/01/2019 -20,000 1

4 Payment 12/31/2019 187,804** 5 Annual 12/31/2023

*calculated by TValue

**payment amount is calculated above under Step B1.1

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step B1.3: Determine the present value of the old and new debt

Step B1.3a: Determine the PV of the remaining cash ﬂows of the old debt using the effective interest rate of the old debt

R Company calculates the present value of the remaining cash ﬂows to the creditor using the effective interest rate of the old

debt and TValue to be $323,097:

Compound Period: Annual

Nominal Annual Rate: 10.675%

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 323,097* 1

2 Payment 12/31/2022 187,804** 2 Annual 12/31/2023

*calculated by TValue

**payment amount is calculated above under Step B1.1

Step B1.3b: Determine the PV of the cash ﬂows of the new debt using the effective interest rate of the old debt

R Company calculates the present value of the cash ﬂows to the creditor for the new debt using the effective interest rate of the

old debt and the annual payments of $177,800. The present value is calculated to be $333,504:

Compound Period: Annual

Nominal Annual Rate: 10.675%

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 333,504* 1

2 Loan 01/01/2022 375,000 1

3 Loan 01/01/2022 -45,790 1

4 Payment 12/31/2022 177,800** 5 Annual 12/31/2026

*calculated by TValue

** payment amount is calculated above under Step B1.1, rounded for ease of calculation.

Step B1:4: Calculate the percentage difference of the PV of the cash ﬂows of the new debt and the PV of the remaining cash

ﬂows of the old debt

Percentage difference– 333,504/323,097 = 103.2%, 3.2% different

R Company concludes that the restructured debt represents a modiﬁcation.

R Company’s debt does not include a conversion option. Consequently, R Company answers Steps B2 and B3 “no” and continues to

Step 123 Modiﬁcation.

56 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step B123: Modiﬁcation

Step B123.1M: Record the entry upon modiﬁcation

Step B123.1Ma: Expense the debt issues costs (fees paid to third parties) incurred to modify the debt

Debt issue costs associated with the modiﬁed debt are expensed. The Company incurred $33,000 in debt issue costs, fees to

attorneys and accountants.

Dr Debt Modiﬁcation Expense $33,000

Cr Cash $33,000

Step B123.1Mb: Recognize fees paid to/received from the creditor as a debt discount/premium

The fees paid to the creditor are deducted from the loan proceeds as a debt discount. R Company issued shares of its common

stock with a fair value of $45,790 to Lender, Inc. for the debt modiﬁcation.

Dr Debt Discount $45,790

Cr Common Stock $45,790

Step B123.1Mc: Record any change in the amount of the debt and cash received/paid

At the date of modiﬁcation, R Company records the incremental debt and cash received (combined with the entries for a and

b above).

January 1, 2016 – Date of the Modiﬁcation

Dr Cash $342,000

Dr Debt Discount $ 45,790

Dr Debt Modiﬁcation Expense $ 33,000

Cr Debt $375,000

Cr Common stock $ 45,790

Step B123:2M: Calculate the effective interest rate of the modiﬁed debt

The Company includes in its calculation of effective interest rate the interest payments at the contractual rate, remaining debt issue

costs (fees paid to third parties) and discount (fees paid to the creditor) from the old debt, and discount (fees paid to the creditor)

from the new debt. The Company determines the rates to be 11.3%:

New Debt

Effective Interest Rate 11.31%

Date Amount

Old Debt 01/01/2022 $334,905

Additional New Debt 01/01/2022 $375,000

Unamortized Debt Issue Costs and Discount of Old Debt 01/01/2022 -$11,900

Debt Issue Costs

Fees Paid to the Creditor (Common Stock) for New Debt 01/01/2022 -$45,790

Annual Interest & Principal Payment 12/31/2022 -$177,800

Annual Interest & Principal Payment 12/31/2023 -$177,800

Annual Interest & Principal Payment 12/31/2024 -$177,800

Annual Interest & Principal Payment 12/31/2025 -$177,800

Annual Interest & Principal Payment 12/31/2026 -$177,800

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

R Company uses TValue as shown in the attached ﬁle and the schedule below to determine the annual effective interest rate on the new

debt (11.3%). R Company includes the amortization information in the schedules below for purposes of preparing the journal entries.

Compound Period: Annual

Nominal Annual Rate: 11.31%*

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 334,905 1

2 Loan 01/01/2022 375,000 1

3 Loan 01/01/2022 -11,900 1

4 Loan 01/01/2022 -45,790 1

5 Payment 12/31/2022 177,800** 5 Annual 12/31/2026

*calculated by TValue

** payment amount is calculated above under Step B1.1

AMORTIZATION SCHEDULE - Normal Amortization

Date Loan Payment Interest Principal Balance

Loan 01/01/2022 334,905 334,905

Loan 01/01/2022 375,000 709,905

Loan 01/01/2022 11,900- 698,005

Loan 01/01/2022 45,790- 652,215

1 12/31/2022 177,800 73,565 104,235 547,980

2 12/31/2023 177,800 61,978 115,822 432,158

3 12/31/2024 177,800 48,878 128,922 303,236

4 12/31/2025 177,800 34,297 143,503 159,733

5 12/31/2026 177,800 18,067 159,733 0

58 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step B123:3M: Prepare the entries for the remaining life of the modiﬁed debt

Using the attached amortization schedule below, R Company will record the following entries each year until the debt is paid off on

December 31, 2026.

December 31, 2022 Dr Interest Expense $ 73,565

Dr Debt $ 121,110

Cr Debt Issue Cost & Discount $ 16,875

Cr Cash $177,800

December 31, 2023 Dr Interest expense $ 61,978

Dr Debt $130,651

Cr Debt Issue Cost & Discount $ 14,829

Cr Cash $177,800

December 31, 2024 Dr Interest expense $ 48,878

Dr Debt $ 141,113

Cr Debt Issue Cost & Discount $ 12,191

Cr Cash $177,800

December 31, 2025 Dr Interest expense $ 34,297

Dr Debt $152,413

Cr Debt Issue Cost & Discount $ 8,910

Cr Cash $177,800

December 31, 2026 Dr Interest expense $ 18,066

Dr Debt $164,618

Cr Debt Discount $ 4,884

Cr Cash $177,800

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

10% CASH FLOW TEST  AMORTIZING LOAN  EXTINGUISHMENT

FACTS

R Company borrows $1,000,000 from Lender, Inc. on January 1, 2019. Interest and principal payments are due annually over a ﬁve-year

period. The ﬁnal payment is due on December 31, 2023 - it is issued at par, the contractual interest rate is 8% and the fee paid to the

creditor (the discount) is 5% of the face amount of the debt or $50,000. Debt issue costs for lawyers and accountants amounted to

$40,000. R Company records the following entry on the date it borrows $1,000,000 from Lender, Inc.:

Dr Cash $ 910,000

Dr Debt Discount $ 50,000

Dr Debt Issue Costs $ 40,000

Cr Debt $1,000,000

On January 1, 2022, R Company negotiated with Lender, Inc. to receive an additional $900,000 and add it to the balance of the note

with a due date of December 31, 2026. R Company determined that the new borrowing did not represent a troubled debt restructuring

as the company was not having ﬁnancial difﬁculties and Lender, Inc. did not provide any concessions. R Company borrowed the

additional $900,000 from Lender as it needed capital to develop a new product.

R Company paid its accountants and attorneys $45,000 for services rendered for the new debt. Lender, Inc. increased the interest rate

to 12%. R Company paid Lender a fee of $60,000 for the new debt.

At January 1, 2022, R Company had amortized $68,400 of the debt discount and debt issue costs; $21,600 remained to be amortized. At

that date, R company had paid $553,460 of principal, $446,540 of principal remained to be paid on the outstanding debt. The debt is

not callable or puttable.

ANALYSIS

Step B1: 10% Cash Flow Test

Using the 10% cash ﬂow test, is R Company’s change in debt a modiﬁcation or extinguishment?

Present value of the remaining cash ﬂows of old debt $425,079

Present value of the cash ﬂows of new debt $ 517,106

Difference $ 92,027

Percentage difference 22%

R Company concludes that the restructured debt represents an extinguishment under the 10% cash ﬂow test, as the percentage

difference is at least 10%. R Company performed the cash ﬂow test analysis by performing the steps below.

60 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step B1.1: Determine the terms of the old debt and the new debt

Old Debt New Debt

Face Amount $1,000,000 $1,346,540

($446,540 +

$900,000

Contractual Interest Rate 8% 12%

Issuance/Restructure Date 01/01/2019 01/01/2022

Type of Cash Flows Date Amount Amount

Loan 01/01/2019 $1,000,000

Debt Discount (fees paid to the creditor) 01/01/2019 -$50,000

Debt Issue Costs (fees paid to third parties) 01/01/2019 -$40,000

Annual Payment Principal & Interest 12/31/2019 – 12/31/2021 -$250,406

Remaining Unamortized Debt Discount

(fees paid to the creditor) and Debt Issue Costs

(fees paid to third parties)

01/01/2022 -$21,600

Additional Loan 01/01/2022 $900,000

Debt issue costs (fees paid to third parties) -$45,000

Debt Discount (fees paid to creditor) 01/01/2022 -$60,000

Annual Payment Principal & Interest 12/31/2022 – 12/31/2026 -$373,543

Payment Terms – Old Debt

R Company has been given a payment and amortization schedule from Private Equity Company for the original debt of $1,000,000. R

Company uses TValue to check the schedule, and it is shown in the attached ﬁle and below:

Compound Period: Annual

Nominal Annual Rate: 8.000 %

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2019 1,000,000 1

2 Payment 12/31/2019 250,406* 5 Annual 12/31/2023

*calculated by TValue

AMORTIZATION SCHEDULE - Normal Amortization

Date Loan Payment Interest Principal

Loan 01/01/2019 1,000,000

1 12/31/2019 250,406 79,781 170,625 829,375

2 12/31/2020 250,406 66,351 184,055 645,320

3 12/31/2021 250,406 51,626 198,780 446,540

4 12/31/2022 250,406 35,723 214,683 231,857

5 12/31/2023 250,406 18,549 231,857 0

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Payment Terms –New Debt

R Company checks the payment and amortization schedule of the new debt calculated provided by Private Equity Company. This

payment schedule includes both the remaining principal of the old debt of $446,540 and the new debt of $900,000, and calculated

the annual principal and interest payment to be $373,434:

Compound Period: Annual

Nominal Annual Rate: 12.000 %

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 446,540 1

2 Loan 01/01/2022 900,000 1

3 Payment 12/31/2022 373,434* 5 Annual 12/31/2026

*calculated by TValue

AMORTIZATION SCHEDULE - Normal Amortization

Date Loan Payment Interest Principal Balance

Loan 01/01/2022 446,540 446,540

Loan 01/01/2022 900,000 0 0 1,346,540

1 12/31/2022 373,434 161,142 212,292 1,134,248

2 12/31/2023 373,434 136,110 237,324 896,924

3 12/31/2024 373,434 107,631 265,803 631,121

4 12/31/2025 373,434 75,735 297,699 333,422

5 12/31/2026 373,434 40,012 333,422 0

Step B1.2: Calculate the effective interest rate of the old debt

Include in the calculation interest payments at the contractual rate of interest, debt issue costs (fees paid to third parties), and debt

discount (fees paid to the creditor).

R Company uses TValue as shown in the attached ﬁle and the schedule below to determine that the annual effective interest rate on the

old debt is 11.685%:

Compound Period: Annual

Nominal Annual Rate: 11.685 %*

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2019 1,000,000 1

2 Loan 01/01/2019 50,000- 1

3 Loan 01/01/2019 40,000- 1

4 Payment 12/31/2019 250,406 5 Annual 12/31/2023

*calculated by TValue

62 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step B1.3: Determine the present value of the old and new debt

Step B1.3a: Determine the PV of the remaining cash ﬂows of the old debt using the effective interest rate of the old debt

R Company calculates the present value of the remaining cash ﬂows to the creditor using the effective interest rate of the old

debt and TValue to be $425,079:

Compound Period: Annual

Nominal Annual Rate: 11.685 %

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 425,079* 1

2 Payment 12/31/2022 250,406 2 Annual 12/31/2023

*calculated by TValue

Step B1.3b: Determine the PV of the cash ﬂows of the new debt using the effective interest rate of the old debt

R Company calculates the present value of the cash ﬂows to the creditor using the effective interest rate of the old debt to be

$517,106:

Compound Period: Annual

Nominal Annual Rate: 11.685 %

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 517,106 1

2 Loan 01/01/2022 900,000 1

3 Loan 01/01/2022 -60,000 1

4 Payment 12/31/2022 373,434 5 Annual 12/31/2026

*calculated by TValue

Step B1:4: Calculate the percentage difference of the PV of the cash ﬂows of the new debt and the PV of the remaining cash

ﬂows of the old debt

Percentage difference– 517,106/425,079 = 121.7%, 21.7% different

R Company concludes that the restructured debt represents an as the change was at least 10%.

R Company continues to Steps B123.1-4 Extinguishment.

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

Step B123.E: Extinguishment

Step B123.1E: Determine the fair value of the new debt

In accordance with ASC 470-50-40, R Company will record the new debt at fair value. The company determines its fair value interest

rate to be 14% given quotes it received from other lenders before proceeding with the loan from Private Equity Company. R Company

refers to the interest and principal cash ﬂow payments of the new debt to calculate the fair value of the debt at its fair value interest rate

to be $1,282,403:

New Debt

At Fair Value

Fair Value Interest Rate 14%

Issuance/Restructure Date 01/01/2022

Type of Cash Flows Date Amount

Interest & Principal Payment 12/31/2022 -$373,434

Interest & Principal Payment 12/31/2023 -$373,434

Interest & Principal Payment 12/31/2024 -$373,434

Interest & Principal Payment 12/31/2025 -$373,434

Interest & Principal Payment 12/31/2026 -$373,434

Compound Period: Annual

Nominal Annual Rate: 14.000 %

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 1,282,461* 1

2 Payment 12/31/2022 $373,434 5 Annual 12/31/2026

*calculated by TValue

Step B123:2E: Prepare the entry to write off the old debt and record the new debt

Refer to the Facts and B123.1E for the amounts and see Excel schedule below for details.

a. Write off for the unamortized debt discount/premium (fees paid to/received from the creditor) and debt issue costs (fees

paid to third parties) associated with the old debt

The unamortized discount and debt issue costs associated with the old debt of $21,600 are written off to expense.

b. Capitalize the new debt issue costs (fees paid to third parties)

Debt issue costs are capitalized when a debt extinguishment has occurred. Consequently, the Company capitalized debt issue costs

of $45,000 which it paid in cash.

c. Write off the old debt and record the new debt at fair value

The old debt is written off at its carrying amount of $446,540. The new debt is recorded at fair value of $1,282,461. This is the debt’s

new face amount is $1,346,540 ($900,000 new debt plus old debt of $446,540) less a discount of $64,079 to equal the fair value

amount. The fee paid to the lender of $60,000 is expensed.

Once the entries are posted, the net of the $60,000 lender fee expense, plus the $21,600 expense to write off the unamortized debt

issuance and discount, less the gain representing the difference between the face and fair value of the debt of $64,079, equals the

net loss on extinguishment of $17,521.

64 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

R Company summarizes these entries and records the loss on extinguishment:

January 1, 2022 – Date of the Extinguishment

1.Dr Cash $ 795,000

2.Dr Old Debt $446,540

3.Dr Debt Issue Costs $ 45,000

4.Dr Debt Discount $ 64,079

5. Dr Loss on Debt Extinguishment Net $ 17,521

Cr Debt $1,346,540

Cr Debt Issue Costs & Debt Discount $ 21,600

Step B123.3E: Calculate the effective interest rate of the new debt

R Company calculates the effective interest rate of the new debt using TValue to be 15.504%:

New Debt

At Fair Value

Effective Interest Rate 15.504%

Issuance/Restructure Date 01/01/2022

Type of Cash Flows Date Amount

Debt 01/01/2022 $1,346,540

Debt Issue Costs (fees paid to third parties) 01/01/2022 -$45,000

Debt Discount (difference between FV and CV) 01/01/2022 -$64,079

Interest & Principal Payment 12/31/2022 -$373,434

Interest & Principal Payment 12/31/2023 -$373,434

Interest & Principal Payment 12/31/2024 -$373,434

Interest & Principal Payment 12/31/2025 -$373,434

Interest & Principal Payment 12/31/2026 -$373,434

Compound Period: Annual

Nominal Annual Rate: 15.504%*

CASH FLOW DATA

Event Date Amount Number Period End Date

1 Loan 01/01/2022 1,346,540 1

2 Loan 01/01/2022 -64,079 1

3 Loan 01/01/2022 -45,000 1

4 Payment 12/31/2022 373,434 5 Annual 12/31/2026

*calculated by TValue

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

AMORTIZATION SCHEDULE - Normal Amortization

Date Loan Payment Interest Principal Balance

Loan 1/1/2022 1,346,540 1,346,540

Loan 1/1/2022 -64,079 0 0 1,282,461

Loan 1/1/2022 -45,000 0 0 1,237,461

1 12/31/2022 373,434 191,334 182,100 1,055,361

2 12/31/2023 373,434 163,626 209,808 845,854

3 12/31/2024 373,434 131,097 242,337 603,217

4 12/31/2025 373,434 93,525 279,909 323,307

5 12/31/2026 373,434 50,127 323,307 0

Step B123.4E: Prepare the entries for the remaining life of the new debt

Using the amortization schedule in the attached ﬁle below, R Company prepares the following journal entries to record each year

until the debt is paid off on December 31, 2020.

December 31, 2022 Dr Interest Expense $ 191,334

Dr Debt $ 212,291

Cr Debt Issue Cost & Discount $ 30,192

Cr Cash $373,434

December 31, 2023 Dr Interest expense $ 163,626

Dr Debt $ 237,324

Cr Debt Issue Cost & Discount $ 27,515

Cr Cash $373,434

December 31, 2024 Dr Interest expense $ 131,097

Dr Debt $265,803

Cr Debt Issue Cost & Discount $ 23,466

Cr Cash $373,434

December 31, 2025 Dr Interest expense $ 93,525

Dr Debt $ 297,699

Cr Debt Issue Cost & Discount $ 17,790

Cr Cash $373,434

December 31, 2026 Dr Interest expense $ 50,127

Dr Debt $333,423

Cr Debt Discount $ 10,116

Cr Cash $373,434

66 BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

BDO is the brand name for BDO USA, LLP, a U.S. professional services ﬁrm providing

assurance, tax, and advisory services to a wide range of publicly traded and privately held

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international BDO network of independent member ﬁrms. BDO is the brand name for the

BDO network and for each of the BDO Member Firms. For more information please visit:

www.bdo.com.

To ensure compliance with Treasury Department regulations, we wish to inform you that

any tax advice that may be contained in this communication (including any attachments)

is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding

tax-related penalties under the Internal Revenue Code or applicable state or local tax law

provisions or (ii) promoting, marketing or recommending to another party any tax-related

matters addressed herein.

Material discussed is meant to provide general information and should not be acted on

without professional advice tailored to your needs.

BDO Knows Troubled

Debt Restructuring,

Debt Modiﬁcation

and Extinguishment

BDO KNOWS TROUBLED DEBT RESTRUCTURING, DEBT MODIFICATION AND EXTINGUISHMENT

CONTACTS:

ADAM BROWN

214-665-0673 / [email protected]

GAUTAM GOSWAMI

312-233-1818 / [email protected]

ROSCELLE GONZALES

312-233-1825 / [email protected]

TIM KVIZ

703-245-8685 / [email protected]

JIN KOO

214-243-2941 / [email protected]

THOMAS FAINETEAU

214-243-2924 / [email protected]

JON LINVILLE

214-243-2940 / [email protected]

LIZA PROSSNITZ

312-233-1818 / [email protected]