team paper

team paper

Herbert Huber
Accounting Department

Client Request II

The Accounting Department has examined the circumstances and requests outlined by the client relative to the potential outcome of a pending lawsuit. Although, we have not received a response from the clients’ lawyer regarding the possible unfavorable outcome of the lawsuit, extensive research has been conducted to address the client’s concerns. Our research includes information, per the client’s request, related to effect on the financial statements concerning the following:

Mortgage being rewritten
Chapter 11
Contingency requirements
Patent impairment if lawsuit is lost

Mortgage Rewritten and Loan Forgiveness

Based on the information provided by the client, the lawsuit could possibly affect the status of the mortgage. Contacting the mortgage lender is the correct course of action, because restructuring the loan is a possibility. The lender can offer several options that may include forgiving the debt. According to FASB, the creditor can restructures debt due to the debtor’s financial difficulties and grant concessions they would not otherwise consider, by restructuring the terms to either reduce or defer cash payments in the near future. However, restructuring or rewriting the debt does not mean it has been forgiven. However, if the debt is forgiven partially or totally through foreclosure the client will have to disclose the following information in the body of the financial statement or in the notes of the financial statements according to FASB Statement No. 15:

A description of the principle change in terms, the major features of the settlement or both, for each restructuring
Aggregate gain on restructuring of payable and related income tax effect
Aggregate gain or loss on any transfers of assets during the period
Per share amount of aggregate gain on restructured payables net of related income tax effect

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