Question

On December 31, 2020, Oriole Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $4,300,000 note receivable by the following modifications: 1. Reducing the principal obligation from $4,300,000 to $2,920,000, 2. Extending the maturity date from December 31, 2020, to January 1, 2024. 3. Reducing the interest rate from 12% to 10%. Barkley pays interest at the end of each year. On January 1, 2024, Barkley Company pays $2,920,000 in cash to Oriole Bank. Answer the following questions related to Oriole Bank (creditor). Your answer is partially correct. Try again. Compute the loss Oriole Bank will suffer under this new term modification, (Round answer to O decimal places, e 38,548.) Loss on restructuring of debt T 504000 Prepare the journal entry to record the loss on Oriole's books. (Round answers to o decimal places, e.g. 38,548. Il no entry is required, selec "No Entry for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit December 31, 2020 Notes Payable 504000 | Gain on Restructuring 504000

Answer 1

Part 1
	Pre-restructuring carrying amount of note			$        4,300,000
	Less: Present value of restructured future cash flows:
	Present value of principal $1,860,000 due in 3 Years at 12%	2920000*0.71178	$ 2,078,398		$         2,078,398
	Present value of interest $186,000 paid annually for 3 years at 12%	292000*2.40183	$    701,334	$        2,779,732	$            701,335
	Loss on restructuring of debt			$        1,520,268
	Dec 31 2020
	Bad Debt Expense	$           1,520,268
	Allowance for Doubtful Accounts		$ 1,520,268
Part 2				Increase in
	Date	Cash Interest 10%	Eff Int 12%	Carrying amount	Carrying Amount
	12/31/2020				$         2,779,732
	12/31/2021	$              292,000	$    333,568	$             41,568	$         2,821,300
	12/31/2022	$              292,000	$    338,556	$             46,556	$         2,867,856
	12/31/2023	$              292,000	$    344,143	$             52,143	$         2,919,999
	Total	$              876,000	$ 1,016,267	$           140,267
Part 3
Dec 31 2021
	Cash	$              292,000
	Allowance for Doubtful Accounts	$                41,568
	Interest Revenue		$    333,568
Dec 31 2022	Cash	$              292,000
	Allowance for Doubtful Accounts	$                46,556
	Interest Revenue		$    338,556
Dec 31 2023	Cash	$              292,000
	Allowance for Doubtful Accounts	$                52,143
	Interest Revenue		$    344,143
Part 4
Jan 1 2024	Cash	$           2,919,999
	Allowance for Doubtful Accounts (Rounding error +1)	$           1,380,001
	Note Receivable		$ 4,300,000