Question

On December 31, 2020, American Bank enters into a debt restructuring agreement with Sweet Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $3,310,000 note receivable by the following modifications: 1. 2. Reducing the principal obligation from $3,310,000 to $2,648,000. Extending the maturity date from December 31, 2020, to January 1, 2024. Reducing the interest rate from 12% to 10%. 3. Sweet pays interest at the end of each year. On January 1, 2024, Sweet Company pays $2,648,000 in cash to American Bank.

Answer 1

Answer
Explanation :
Interest payment Schedule :
Date	Cash Paid 10%	Interest Expenses	Carrying amount	Total
31-12-2020		1.4276%		$         33,10,000
31-12-2021	$      2,64,800.00	$             47,253.56	$      2,17,546.44	$    30,92,453.56
31-12-2022	$      2,64,800.00	$             44,147.87	$      2,20,652.13	$    28,71,801.43
31-12-2023	$      2,64,800.00	$             40,997.84	$      2,23,802.16	$    26,47,999.26

Interest Payment entry :
Journal entry
Date	Account Titles and Explanations	Debit	Credit
31-12-2022	Notes payable	$       2,20,652.13
	Interest expenses	$          44,147.87
	To, Cash		$       2,64,800.00
	( To record interest payment )
The payment entry at maturity :
Journal entry
Date	Account Titles and Explanations	Debit	Credit
31-12-2024	Notes payable	$     26,47,999.26
	To, Cash		$     26,47,999.26