Question

Exercise 7-35 (Algo) Troubled debt restructuring (Appendix 7B] At January 1, 2021, Clayton Hoists Inc. owed Third BancCorp $13 million, under a 10% note due December 31, 2022. Interest was paid last on December 31, 2019. Clayton was experiencing severe financial difficulties and asked Third BancCorp to modify the terms of the debt agreement. After negotiation Third BancCorp agreed to do the following: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.): Forgive the interest accrued for the year just ended. Reduce the remaining two years' interest payments to $1 million each. Reduce the principal amount to $12 million. Required: 1-3. Prepare the journal entries by Third BancCorp necessitated by the restructuring of the debt at January 1, 2021, December 31, 2021 and December 31, 2022. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your final answers to nearest whole dollar amount.) X Answer is not complete. No Credit Date General Journal January 01, 2021 Bad debt expense Interest receivable Debit 1,300,000 X 1 1,300,000 December 31, 20 Cash Bad debt expense Interest revenue 1,000,000 92,649 X X 1,092,649 X December 31, 20) Cash Bad debt expense Interest revenue 100,000 X 790,914 X 890,914 December 31, 201 Cash 12,000,000 1,000,000 X Bad debt expense Accounts receivable * 13,000,000

Answer 1

Third Banc Corp
Date	Account Titles	Debit	Credit
01.01.2021	Interest Income	1,300,000.00
	Interest Receivable		1,300,000.00
	(To reverse the interest income recorded for the year 2020).
01.01.2021	Bad Debts Expenses	1,000,000.00
	Accounts Receivable		1,000,000.00
	(To record reduction in accounts receivable)
31.12.2021	Bank A/c (Note_1)	1,000,000.00
	Interest Income		1,000,000.00
	(To record interest received as per revised agreement)
31.12.2022	Bank A/c	1,000,000.00
	Interest Income		1,000,000.00
	(To record interest received as per revised agreement)
31.12.2022	Bank A/c	12,000,000.00
	Trade Receivable		12,000,000.00
	(To record receipt of trade receivables)
Note_1	There is no need to record reduction in interest as bad debts, Interest shall be accrued to the tune of 1000000 only as per agreement.