Question

At January 1, 2021, Rothschild Chair Company, Inc., was indebted to First Lincoln Bank under a $30 million, 12% unsecured note. The note was signed January 1, 2018, and was due December 31, 2024. Annual interest was last paid on December 31, 2019. Rothschild Chair Company was experiencing severe financial difficulties and negotiated a restructuring of the terms of the debt agreement. (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.)

Required:

Prepare all journal entries by Rothschild Chair Company, Inc., to record the restructuring and any remaining transactions relating to the debt under each of the independent circumstances below:

1. First Lincoln Bank agreed to settle the debt in exchange for land having a fair value of $26 million but carried on Rothschild Chair Company’s books at $22.0 million.
2. First Lincoln Bank agreed to (a) forgive the interest accrued from last year, (b) reduce the remaining four interest payments to $1 million each, and (c) reduce the principal to $24.0 million.
3. First Lincoln Bank agreed to defer all payments (including accrued interest) until the maturity date and accept $44,042,200 at that time in settlement of the debt.

Answer 1

Answer Page. No o 0 Journal coties * To erecord the gain on disposal of awets kand - $ 26 million - $ 22omillion = $ 4 million * To record journal entry on : Notes payable - $30 million Interest payable - $ 30% la 1. E $ 3.6 million Land = & 26 million Gain on Gobbled debt restructuring = 30+306-26 716 million l event | General Journal Debit (million) Gedit (million Land Gain on disposal of assets . Notes payable Interest payable 1 $3.6 land $26 Gain on troubled debt res bructuring 7.6

Page. No @ slo Debib(million) Gredil yerine w ww Journal entries 1. General journal Interest payable Notes payable Gain on troublecl debt restui choring Notes payable ... cash Notes payable cash $5.6 $ 24 Notes payable - $ 26 millien - $ 24 million = $2 million In thápo expense should be ciecorded abber the resfuclier -ing. All the subsequent cash payments results is the reductions of principal ☺ Lowrnal entries - Book value . = 20000,000 + ( 30,000,000 X0.12) = 30,000,000 + 3600,000

Page. no Present = $ 33600,000 Besent value of debt value facbor - totune value of debt 33600,000 44042200 s 0.7629046687 (from pv table) At 4 years, 0.4629046684;. The effection rate of interest & 7% On dec 31, 2001, Interest expense = $ 33600,000 X 7% . = $ 2352000 On dec 31, 2002, Interest expense = (2352000 + 33600,000 ) * % - 35952000 X 4) = $ 2516640

Page No ③ on dec 31, 2003, Interest expense - (23600,000 + 2359000 + 25166 40)x 77. = (38468640)x 4% 2692805 On dec 31, 2004) Interest expense = (33600,000 4 2352000 + 0516640+2692809) X 70% 41161445 x 7% - = $ 2881300 30,000,000 Interest payable = 44040200 - - $14042200 Notes payable = $30,000,000 Cash = $44042200

Page No Debit Credit Date Tani, al Particular . No entry is recorded Interest expense Interest payable dec 31, $2352000 2001 - $ 2353000 decal, $ 2516640 2002 Interest expense interessos payable $ 2566640 $2692805 dec 31, 2003 $2692805 Interest expense interest payable Interest expense Inteneef payable dec 31, 0881300 2024 $2881300 der 31, $ 14042200 - 2024 Interest payable Notes payable $30,000000 Cash $44042200