| Course | ACC 690 Advanced Topics in Financial Reporting |
|---|---|
| Module | Module 8 |
| Paper type | graduate assignment on debt modifications and troubled debt restructurings |
| Length | About 1,000 words, 6 pages |
| Format | APA 7 student paper |
| School | Southern New Hampshire University |
| Program | MS Accounting |
| Updated | October 2026 |
Free sample paper for ACC 690 Module 8
Accounting for the Term Loan Amendment
[Student Name]
Southern New Hampshire University
ACC 690: Advanced Topics in Financial Reporting
Module Eight Assignment
[Instructor Name]
[Date]
The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.
Accounting for the Term Loan Amendment
Introduction
A drought across the western Corn Belt in the summer of 2025 pushed corn prices up faster than ethanol prices, and the company's crush margins were negative for two months. By August it projected that its debt-to-EBITDA ratio would exceed the term loan's 3.5 limit at September 30 and December 31. The bank group agreed to amend the $150 million loan on September 15: the two covenant tests were waived, the interest margin rose by 0.75 point, the maturity was extended by one year to six years remaining, and the company paid the lenders a $1.5 million amendment fee. It also paid $0.4 million to its own lawyers and advisers (Kieso et al., 2019).
Step One: Troubled Debt Restructuring?
ASC 470-60 applies when a borrower is experiencing financial difficulty and the lender grants a concession. The company was experiencing financial difficulty: without the waiver it would have breached a covenant, which is one of the indicators in ASC 470-60-55-8. The second condition is not met. A concession is generally indicated when the effective borrowing rate on the restructured debt is lower than before. The old effective rate was 7.3 percent, SOFR of 4.3 percent plus a 3.0 margin. The new terms, an 8.05 percent rate plus a $1.5 million fee on a $150 million balance, give an effective rate of about 8.27 percent, higher than before. The lenders were compensated for the waiver rather than granting a concession, so the amendment is not a troubled debt restructuring. The other indicators of a concession, such as forgiveness of principal or accrued interest, are also absent, and the lenders did not accept assets or equity in exchange for reduced debt.
Step Two: The 10 Percent Test
Under ASC 470-50-40-10, the old debt is treated as extinguished when the new cash flows, fees to the lender included, have a present value at least 10 percent away from the present value of the remaining old cash flows, both discounted at the old debt's original effective rate. Variable interest is projected using the rate at the amendment date.
Cash flow test at the original effective rate of 7.3 percent, in millions
| Item | Old terms | New terms |
|---|---|---|
| Remaining term | 5 years | 6 years |
| Annual interest | $10.95 at 7.3 percent | $12.08 at 8.05 percent |
| Fee paid to lenders at amendment | None | $1.5 |
| Present value of cash flows | $150.0 | $156.8 |
| Change | 4.5 percent |
The difference is 4.5 percent, below 10 percent, so the terms are not substantially different and the amendment is a modification.
Step Three: Accounting for the Modification
In a modification, the old debt continues, and a new effective interest rate is determined from the carrying amount and the revised cash flows. The $1.5 million fee paid to the lenders is recorded as a reduction of the carrying amount, a debt discount, and amortized over the six-year remaining term through interest expense. The $0.4 million paid to the company's own lawyers and advisers is a third-party cost, expensed as incurred in a modification. The new effective rate, about 8.27 percent, is used to recognize interest from September 15.
The Syndicate
The term loan is held by a syndicate of six banks. ASC 470-50 is applied on a lender-by-lender basis. All six remained in the syndicate with the same shares, so the single test applies to each. Had one lender sold its position to a new lender at the amendment, the old lender's portion would be extinguished and the new lender's portion treated as new debt.
If the Test Had Been Failed
Had the lenders demanded a 2.5 point rate increase instead, the present value of the new cash flows would have exceeded the old by more than 10 percent, and the amendment would have been an extinguishment. The old debt would be removed at its carrying amount and the new debt recorded at fair value, with the difference, including the unamortized original issue costs of about $0.9 million, recognized as a loss in earnings. The $1.5 million lender fee would be included in that loss, and the third-party costs would be capitalized as issue costs of the new debt. Showing this alternative explains to the audit committee why the terms negotiated matter for reported earnings as well as for cash.
Effect on the Interest Rate Swap
The company has a pay-fixed, receive-SOFR swap on $100 million of the loan, designated as a cash flow hedge of the variable interest payments. The amendment changed the margin over SOFR and extended the term, but not the SOFR index or the payment dates for the hedged portion during the swap's remaining three years. The forecasted SOFR-based interest payments remain probable, so the hedge relationship continues without dedesignation, and the company updated its hedge documentation to reference the amended agreement.
Link to Going Concern and Covenants
Because the company needed a waiver, management's going concern evaluation under ASC 205-40 must consider whether it can meet the amended covenants over the following year. The amendment reset the debt ratio limit to 4.25 through June 2026, and the company's forecast shows compliance with headroom of about $9 million of EBITDA. Dichev and Skinner (2002) found that companies cluster just inside covenant thresholds and that violations are common and often resolved by renegotiation, consistent with this case, but the evaluation must still be documented.
Disclosures
The notes describe the amendment, the waived tests, the revised terms and covenants, the fee and its treatment and the new maturity. The FASB's 2022 update removed troubled debt restructuring accounting for creditors but not for borrowers, so the company's disclosure of why the amendment is not a troubled debt restructuring remains relevant (Financial Accounting Standards Board, 2022). MD&A discusses liquidity, the covenant headroom and the effect of higher interest on cash flow, about $1.1 million a year.
Conclusion
The amendment is a modification, not a troubled debt restructuring or an extinguishment. The $1.5 million lender fee is a debt discount amortized at a new effective rate of about 8.27 percent, the $0.4 million of third-party costs is expensed, and no gain or loss is recognized.
References
Dichev, I. D., & Skinner, D. J. (2002). Large-sample evidence on the debt covenant hypothesis. Journal of Accounting Research, 40(4), 1091-1123. https://doi.org/10.1111/1475-679X.00083
Financial Accounting Standards Board. (2022). Financial instruments: Credit losses (Topic 326): Troubled debt restructurings and vintage disclosures (Accounting Standards Update No. 2022-02). Author.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.
What the ACC 690 Module 8 instructions ask for
The Module Eight assignment in ACC 690 usually presents a change to a company's debt and asks how to account for it. Plan to determine first whether the change is a troubled debt restructuring under ASC 470-60, which requires both financial difficulty and a concession by the lender, and if not, apply ASC 470-50 to decide whether it is a modification or an extinguishment using the 10 percent cash flow test. Then record the result, including the treatment of fees paid to the lender and to third parties, and draft the disclosures. Show the present value calculation and explain each assumption, especially the discount rate and the treatment of variable interest.
How this ACC 690 Module 8 debt modification assignment example is built
The paper finds the company is experiencing financial difficulty, since without the waiver it would have breached its covenant, but that the lenders granted no concession: the new effective rate of about 8.27 percent exceeds the old 7.3 percent. So the amendment is not a troubled debt restructuring. The 10 percent test compares the present value of the new cash flows, including the $1.5 million fee, $156.8 million, with the old, $150.0 million, both at the original effective rate; the 4.5 percent change is below 10 percent, so the amendment is a modification. The fee becomes a debt discount amortized over the new term, and $0.4 million of legal costs is expensed.
Where the ACC 690 Module 8 rubric puts the points
Rubrics for the debt modification assignment typically score the troubled debt restructuring analysis, the 10 percent test, the accounting entries, the treatment of fees and costs, consideration of syndicated lenders, disclosures and use of the Codification. Strong papers test both elements of a troubled debt restructuring, compute the effective rate comparison, run the cash flow test with the right discount rate and fees, and apply the result lender by lender where the syndicate changed. Graders also reward recognizing the link to covenants and going concern evaluation. Common deductions include skipping the troubled debt test, discounting at the new rate, expensing fees paid to lenders in a modification and treating third-party costs like lender fees.
ACC 690 Module 8 help: the mistakes that cost points
Debt modification papers most often slip on fees: in a modification, fees paid to the lender adjust the debt's carrying amount and are amortized, while third-party costs are expensed; in an extinguishment, the reverse broadly applies. A second weak spot is the discount rate, which is the original effective rate of the old debt, not the new rate. If your case involves a troubled debt restructuring with a concession, the borrower may recognize a gain only if future cash flows are less than the carrying amount. Set out the old and new cash flows by year in a table before discounting; most errors appear in the cash flows rather than the formula.
Get ACC 690 Module 8 written to your instructions
Send the ACC 690 Module 8 assignment and the loan terms. The paper will test for a troubled debt restructuring, run the 10 percent cash flow test, record the modification or extinguishment and draft disclosures with Codification support. Two days is typical, and there is no fee for your first request. The paper above is an original model document written by our desk, not a submitted student paper and not an official Southern New Hampshire University document.
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ACC 690 Module 8 questions, answered
Where can I find a free ACC 690 Module 8 Debt Modification sample?
This page includes a full ACC 690 Module 8 assignment on a term loan amendment, the troubled debt test and the 10 percent test.
When is a debt change a troubled debt restructuring for the borrower?
When the borrower is experiencing financial difficulty and the lender grants a concession, generally indicated by a lower effective borrowing rate on the restructured debt.
What is the 10 percent cash flow test?
A comparison of the present value of the new debt's cash flows, including lender fees, with the present value of the remaining old cash flows, both at the original effective rate; a difference of at least 10 percent means the terms are substantially different and the old debt is extinguished.
How are fees treated in a debt modification?
Fees paid to the lender are treated as an adjustment of the debt's carrying amount and amortized as interest; third-party costs are expensed.
Does a debt amendment affect going concern evaluation?
Yes. Covenant waivers and amendments are part of management's evaluation of whether substantial doubt exists about the company's ability to meet obligations.