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- Title
Fair Valuing Debt Turns Deteriorating Credit Quality into Positive Signals for Boston Chicken.
- Authors
Lipe, Robert C.
- Abstract
This article analyzes proposed accounting for financial instruments using Boston Chicken's financial report from 1997. The example shows how the proposal would cause Boston Chicken to reduce the carrying value of debt and to recognize a gain as its credit quality deteriorated. Several important financial ratios--debt-to-equity, return-on-equity, and interest-coverage--based on reported numbers are consistent with the company's negative performance. When the same ratios are restated to reflect the proposed accounting, 1997 appears to be a good year for Boston Chicken. A discussion of the example raises several issues to be considered in the policy debate over when to recognize the gain from a decline in the debtor's own credit quality.
- Subjects
ACCOUNTING; FINANCIAL instruments; DEBT; FINANCIAL ratios; DEBT-to-equity ratio; RATE of return
- Publication
Accounting Horizons, 2002, Vol 16, Issue 2, p169
- ISSN
0888-7993
- Publication type
Editorial
- DOI
10.2308/acch.2002.16.2.169