Question

Exercise 14-34 Troubled debt restructuring; modification of terms (Appendix B) At January 1, 2018, Brainard Industries, Inc., owed Second BancCorp $14 million under a 10% note due December 31, 2020. Interest was paid last on December 31, 2016. Brainard was experiencing severe financial difficulties and asked Second BancCorp to modify the terms of the debt agreement. After negotiation Second BancCorp agreed to: a. Forgive the interest accrued for the year just ended. b. Reduce the remaining two years' interest payments to $1 million each and delay the first payment until December 31, 2019. c. Reduce the unpaid principal amount to $13 million Required: Prepare the journal entries by Brainard Industries, Inc., necessitated by the restructuring of the debt at (1) January 1, 2018 (2) December 31, 2019; and (3) December 31, 2020. (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.) View transaction list Journal entry worksheet < 1 2 3 4 Record the restructuring of the debt on January 1, 2018. Note: Enter debits before credits Date General Journal Debit Credit January 01, 2018

Answer 1

Solution Book value future valve (14000000* 1000000] = [ 1000000 x2] + 13000000 = 15400000 15000000 400000 Journal entry :- 1-1-18 1400000 Acorwed Interest payable (10. X14000000] Note payable" Garn - debt restruct 1000000 400000 31-12-19 1 . Note 1000000 payable Cash 1000000 31-12-20 1000000 Note payable cash loooooo 31-12-20 13000000 Note payable cash 13000000 * The Interest payments now reduce the principal of the debt because the restucturing made the total debt owed 13000000 with two Madatory payments of 1000000 at one and two years time.