Evergrande Bondholders Mull Next Steps in Wake of Missed Payment

By Alexander Gladstone Alexander Saeedy Frances Yoon | September 28, 2021 from the Wall Street Journal

Topics: Interest Payments, Default

Summary: The article discusses the impact of China Evergrande Group's missed interest coupon payment on long-term bond debt. Evergrande is China's largest real estate developer with ongoing projects all over the country. It is unclear at this time if the Chinese government will be willing to bail out the entity or if assistance will come only for internal Chinese debtors. The company has borrowed internationally, but debtors also include homebuyers who have made downpayments on construction in process.

In chapter 9, we considered accruing for interest. Let's review concepts on accrued interest. Which of the following is correct with respect to the unpaid amounts due to the bondholders at Evergrande?

Question options:

1)	The interest due bondholders would show up as a long-term expense related to the long-term nature of the bonds and as an expense on the income statement.

2)	Since the interest has not been paid to the bondholders, there is no impact to the balance sheet or the income statement.

3)	The interest due bondholders would show up as a current liability on the balance sheet and a cash outflow on the statement of cash flows.

4)	The interest due to bondholders would show up as a current liability on the balance sheet and an expense on the income statement.