Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 29 – Troubled Debt Restructuring
Sample (Illustrative, may not tie to exhibits)

Sample agency made a loan to a private corporation with the repayment terms of monthly payments in the amount of $45,803 paid at the end of the month and an annual interest rate of 3 percent compounded monthly. The outstanding principal at the beginning of fiscal 201X is 1 million dollars and there are 36 months remaining prior to maturity.

In fiscal 201X, the corporation is experiencing a financial difficulty and negotiated with the agency for different payment terms to alleviate its near-term cash flow problem. Sample agency agreed to restructure the repayments to $14,517 per month for 35 months and a balloon payment of $750,000 at the end of the 36th month. The interest rate remained the same at 3 percent per year and the maturity date remained the same.

Since the present value of the original remaining payments at the beginning of fiscal 201X equals the present value of the restructured 35 monthly payments plus the balloon payment at maturity, and the future cash receipts designated as principal and interest will be more than the recorded investment in the loan receivable, sample agency did not recognize a loss in the trouble debt restructuring. The agency records the principal repayments and interest revenues using the effective interest method for both the original and restructured loans.