Quist September Newsletter
Hello, Welcome to Fall! Here’s our latest viewpoints and an event about corporate structure strategy you won’t want to miss:
As we move into the last quarter of 2020, the Alphabet Soup of recovery predictions remains — how do your scenarios align?
As we continue to work through the effects of the pandemic, it’s clear that the duration of the coronavirus recession will only be obvious in hindsight.
Previously, recessions and recoveries have followed four common shapes: V, U, W and L. This “alphabet soup” of letters describe the trajectory of GDP, employment and other key metrics tracking economic conditions.
The good news: recessions do not last forever, and neither will this one.
Scenario planning is critical, no matter what the “letter” of recovery looks like.
Contact the Quist Valuation team if you’d like additional insights at hall@quistvaluation.com.
DEEN Event
Learning the Ins & Outs of Limited Liability Entities
Tuesday, September 15th,
5:30 PM – 7:30 PM
- General overview and importance of limited liability entities
- Potential pitfalls when not using limited liability entities
- How to protect yourself even if you have formed a limited liability company
Click here if you’d like to book a conversation with our expert team about any of these topics, or have other questions for us.
Hello, here’s news and updates from the Quist team —
What will the U.S. recovery look like? There’s an alphabet soup of shapes to consider: V, W, U, L or a Nike swoosh?
Important to consider is that no matter which scenario ultimately emerges, the economic cost of the coronavirus will be unprecedented.
The impact to GDP between a scenario in which the US economy returns to pre-crisis levels in late 2020 or early 2021 (Scenario A3 – a “V-shaped” recovery) and one in which the virus recurs and there is structural damage to the economy (Scenario A1 – a “Swoosh”) could be as high as $15 trillion to $20 trillion globally, with more than $5 trillion lost in the United States.
Click below to learn more about what each of the recovery scenarios means:
More info on the treatment of PPP loans on valuation can be found on our blog here:
Click here if you’d like to book a conversation with our expert team about any of these topics, or have other questions for us.
On June 8th, The National Bureau of Economic Research (NBER) officially declared a recession, noting that the U.S. economy had fallen into contraction starting in February 2020. This marks the first U.S. recession since the Great Recession, which began in December 2007 and lasted until June 2009.
V-Shaped Recovery
Under a V-shaped recovery, the economy will rebound as quickly as it declined, with minimal long-lasting financial damage. A sharp downturn followed by a quick rebound in growth defines the V-shaped recession.
For the COVID-19 recession to be V-shaped, the U.S. would need to set up enough coronavirus testing so that people could safely go back to work without creating another surge in cases, and effectively treat existing cases.
Around 38% of companies believed that the recovery would be V-shaped, with the economy rebounding by the third quarter of 2020, according to a survey from EY conducted in March 2020.
U-Shaped Recovery
Under a U-shaped recovery, the economy re-opens at a measured pace, people gradually return to their normal behavior patterns, and social distancing continues in varying degrees until a vaccine is achieved.
Around 54% of companies believed that the recovery would be U-shaped, with a longer period of slower economic activity extending into 2021, according to a survey from EY conducted in March 2020. EY found that 54% of companies believe that a U-shaped recession is likely.
W-Shaped Recovery
In a W-shaped recession, the economy begins to recover rapidly, but then falls into a second period of decline. This is also known as a double-dip recession—the two economic declines create the shape of a W.
L-Shaped Recovery
The worst-case economic scenario for the COVID-19 crisis is that it causes an L-shaped recession. In this outcome, growth falls and does not recover for years, creating the long shape of the L. The official recession may end within a few quarters, but the recovery to a pre-recession level of economic output may take years. This scenario could happen if the U.S. cannot control coronavirus outbreaks, which would lead to years-long shutdowns and sluggish growth.
Only 8% of companies believed that the recovery would be L-shaped, with a sustained period of recession and economic activity not picking up until 2022 at the earliest, according to a survey from EY conducted in March 2020.
The first thing you want to consider is what basis of accounting is being used for your financials; cash or accrual basis or GAAP. A lot more nuance, interpretation, application of standards applies if the financials are on the GAAP basis.
Cash or Accrual Basis
– Practical Application – the legal form of the PPP loan transaction is debt and should be treated as such until forgiven.
– Recording the Loan – the PPP loan should be recorded as a current liability.
– Recording the Interest – interest is only due on any amount of the loan that is not forgiven based on the stated rate in the loan agreement. Some accountants have recommended that clients accrue the interest even if they think the loan will be 100% forgiven. The accrued interest should be recorded as a current liability.
– At the time that forgiveness is granted, if some or all of the loan is forgiven, the PPP loan and any accrued interest would be adjusted to “Other Income” on the income statement.
GAAP Basis (This is where it gets a bit more technical)
– Similar to the cash or accrual basis, the legal form of the PPP loan transaction is debt and should be treated as such as per ASC 470.
- Under ASC 470, the loan will be accounted for as a liability (loan payable) until it is repaid OR legal notice of forgiveness is received.
- Per the AICPA:
For purposes of derecognition of the liability, FASB ASC 470-50-15-4
refers to guidance in FASB ASC 405-20. Based on the guidance in FASB
ASC 405-20-40-1, the proceeds from the loan would remain recorded as
a liability until either (1) the loan is, in part or wholly, forgiven and the
debtor has been “legally released” or (2) the debtor pays off the loan to
the creditor. Once the loan is, in part or wholly, forgiven and legal release
is received, a nongovernmental entity would reduce the liability by the
amount forgiven and record a gain on extinguishment.
– Liabilities will be classified based on the loan agreement and amortization schedule. PPP loans mature between 2-5 years, with initial payments deferred for a period of time depending on the timing of the loan forgiveness application
– If you are a non-profit organization, there is some argument that the PPP loan transaction is a government grant, which should follow ASC 958-605.
- Under ASC 958-605, you would derecognize the liability and record a
contribution once conditions of release have been substantially met or explicitly waived.
-
Quist September Newsletter
September 14, 2020
Uncategorized 
0 Comment(s)
Hello, Welcome to Fall! Here’s our latest viewpoints and an event about corporate structure strategy you won’t want to miss: As we move into the last quarter of 2020, the Alphabet Soup of recovery predictions remains — how do your […]
Continue reading → -
Quist August Newsletter
August 20, 2020
Uncategorized 0 Comment(s)
Hello, here’s news and updates from the Quist team — What will the U.S. recovery look like? There’s an alphabet soup of shapes to consider: V, W, U, L or a Nike swoosh? Important to consider is that no matter […]
Continue reading → -
What Does Each of the Recovery Scenarios Mean?
August 13, 2020
Uncategorized 0 Comment(s)
On June 8th, The National Bureau of Economic Research (NBER) officially declared a recession, noting that the U.S. economy had fallen into contraction starting in February 2020. This marks the first U.S. recession since the Great Recession, which began in December […]
Continue reading → -
How to Account for Forgivable PPP Loan Proceeds
August 13, 2020
Uncategorized 0 Comment(s)
The first thing you want to consider is what basis of accounting is being used for your financials; cash or accrual basis or GAAP. A lot more nuance, interpretation, application of standards applies if the financials are on the GAAP basis. Cash or […]
Continue reading →
