Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31 st December 2019, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

Question

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Answer 1

Question

Chapter 14, Problem 14P

1.

To determine

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2019, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

1.

Expert Solution

Explanation of Solution

Troubled Debt Restructuring:

A troubled debt restructuring happens if a creditor, for legal or economic reasons associated to a debtor’s financial complications, grants a concession to a debtor that would not be otherwise considered.

Calculate carrying value of note:

Carrying value of note as on 1.1.2016 = Notes payable + Interest payable= $2,400,000 + $34,031.82= $2,434,031.82

Calculate total amount to be repaid of notes payable.

Amount to be repaid = Principal + Interest= ($2,400,000 −$200,000) + ($2,200,000 × 8% × 4)= $2,200,000 +$704,000= $2,904,000

Therefore, no gain recognized by the debtor, because the repaid amount of notes is exceeds the current carrying value of the note and interest.

Calculate amount of restructuring agreement using effective interest rate method.

Particulars	Amount (A)	Present value factor (B)	Value of the Bonds (A × B)
Present value of principal	$2,200,000	0.822702	$1,809,944.44
Add: Present value of interest	$176,000	3.545951	$624,087.38
Restructuring agreement			$2,434,031.82

Table (1)

Note: The Present value of an ordinary annuity of $1 for 4 periods at 5% is 3.545951 (refer Table 4 in TVM Module). And the present value of $1 for 4 periods at 5% is 0.822702 (refer Table 3 in TVM Module).

Working note:

(1)Calculate present value interest amount.

Present value interest = Face value of bonds × Stated interest rate × Time period= $2,200,000 × 8% × 1212= $176,000

Calculate interest expense and principal reduction using amortization schedule.

AMORTIZATION SCHEDULE - NOTES PAYABLE
Date	Cash (A)	Interest expense ( B = Prior period D × 5%)	Notes payable (C = A –B)	Carrying Value of Note (D = Prior period D –C)
1/2/2016				$2,434,031.82
12/31/2016	$176,000	$121,701.59	$54,298.41	$2,379,733.41
12/31/2017	$176,000	$118,986.67	$57,013.33	$2,322,720.08
12/31/2018	$176,000	$116,136.00	$59,864.00	$2,262,857.08
12/31/2019	$2,376,000	$113,142.92	$2,262,857.08	$0.00

Table (2)

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2016, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Interest payable	$34,031.82
	Notes payable		$34,031.82
	(To record transfer of accrued interest payable to notes payable)

December 31, 2016	Interest expense	$121,71.59
	Notes payable	$54,298.41
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2017	Interest expense	$118,986.67
	Notes payable	$57,013.33
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2018	Interest expense	$116,136.00
	Notes payable	$59,864.00
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2019	Interest expense	$113,142.92
	Notes payable	$2,262,857.08
	Cash		$2,376,000.00
	(To record payment of interest expense and interest payable)

Table (3)

2.

To determine

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

2.

Expert Solution

Explanation of Solution

Calculate carrying value of note:

Carrying value of note as on 1.1.2016 = Notes payable + Interest payable= $2,400,000 + $34,031.82= $2,434,031.82

Calculate total amount to be repaid of notes payable.

Amount to be repaid = Principal + Interest= ($2,400,000 −$200,000) + ($2,200,000 × 1% × 4)= $2,200,000 +$88,000= $2,288,000

Calculate gain recognized by the debtor.

Gain recognized by the debtor = Carrying value of note −Repaid amount of notes payable= $2,434,031.82 −$2,228,000= $146,031.82

Therefore, gain recognized by the debtor is $146,031.82. Because the repaid amount of notes is lesser than the current carrying value of the note and interest.

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Interest payable	$34,031.82
	Notes payable		$34,031.82
	(To record transfer of accrued interest payable to notes payable)

January 2, 2016	Notes payable	$146,031.82
	Gain on debt restructure		$146,031.82
	(To record gain on debt restructuring)

December 31, 2016	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2017	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2018	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2019	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

Table (4)

3.

To determine

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

3.

Expert Solution

Explanation of Solution

Calculate gain recognized by the debtor.

Gain recognized by the debtor = Carrying value of note −Fair value of stock=$2,434,031.82 −(160,000 shares × $14.50)= $2,434,031.82 −$2,320,000.00= $114,031.82

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Notes payable	$2,400,000
	Interest payable	$34,031.82
	Gain on Debt restructure		$114,031.82
	Common stock		$800,000
	Additional paid in capital on common stock (balancing figure)		$1,520,000.00
	(To record payment of debt restructuring)

Table (5)

Working note:

(2)Calculate common stock.

Common stock = Number of shares × Par value of common stock= 160,000 shares × $5= $800,000

4.

To determine

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

4.

Expert Solution

Explanation of Solution

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Notes payable	$2,400,000
	Interest payable	$34,031.82
	Gain on debt restructure		$134,031.82
	Gain on disposal of land		$100,000
	Land		$2,200,000.00
	(To record payment of debt restructuring)

Table (6)

Working notes:

(3)Calculate gain on debt restructure.

Gain on debt restructure = Fair value of land −Cost of land= $2,300,000 −$2,200,000= $100,000

(4)Calculate gain recognized by the debtor.

Gain recognized by the debtor (transfer of land)) = Carrying value of note −Fair value of land= $2,434,031.82 −$2,300,000= $134,031.82

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At January 1, 2018, Rothschild Chair Company, Inc., was indebted to First Lincoln Bank under a $20 million,10% unsecured note. The note was signed January 1, 2015, and was due December 31, 2021. Annual interest waslast paid on December 31, 2016. Rothschild Chair Company was experiencing severe financial difficulties andnegotiated a restructuring of the terms of the debt agreement.Required:Prepare all journal entries by Rothschild Chair Company, Inc., to record the restructuring and any remainingtransactions 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 $16 million but carriedon Rothschild Chair Company’s books at $13 million.2. First Lincoln Bank agreed to (a) forgive the interest accrued from last year, (b) reduce the remaining fourinterest payments to $1 million each, and (c) reduce the principal to $15 million.3. First Lincoln Bank agreed to defer all payments…

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Answer 2

Question

Chapter 14, Problem 14P

1.

To determine

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2019, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

1.

Expert Solution

Explanation of Solution

Troubled Debt Restructuring:

A troubled debt restructuring happens if a creditor, for legal or economic reasons associated to a debtor’s financial complications, grants a concession to a debtor that would not be otherwise considered.

Calculate carrying value of note:

Carrying value of note as on 1.1.2016 = Notes payable + Interest payable= $2,400,000 + $34,031.82= $2,434,031.82

Calculate total amount to be repaid of notes payable.

Amount to be repaid = Principal + Interest= ($2,400,000 −$200,000) + ($2,200,000 × 8% × 4)= $2,200,000 +$704,000= $2,904,000

Therefore, no gain recognized by the debtor, because the repaid amount of notes is exceeds the current carrying value of the note and interest.

Calculate amount of restructuring agreement using effective interest rate method.

Particulars	Amount (A)	Present value factor (B)	Value of the Bonds (A × B)
Present value of principal	$2,200,000	0.822702	$1,809,944.44
Add: Present value of interest	$176,000	3.545951	$624,087.38
Restructuring agreement			$2,434,031.82

Table (1)

Note: The Present value of an ordinary annuity of $1 for 4 periods at 5% is 3.545951 (refer Table 4 in TVM Module). And the present value of $1 for 4 periods at 5% is 0.822702 (refer Table 3 in TVM Module).

Working note:

(1)Calculate present value interest amount.

Present value interest = Face value of bonds × Stated interest rate × Time period= $2,200,000 × 8% × 1212= $176,000

Calculate interest expense and principal reduction using amortization schedule.

AMORTIZATION SCHEDULE - NOTES PAYABLE
Date	Cash (A)	Interest expense ( B = Prior period D × 5%)	Notes payable (C = A –B)	Carrying Value of Note (D = Prior period D –C)
1/2/2016				$2,434,031.82
12/31/2016	$176,000	$121,701.59	$54,298.41	$2,379,733.41
12/31/2017	$176,000	$118,986.67	$57,013.33	$2,322,720.08
12/31/2018	$176,000	$116,136.00	$59,864.00	$2,262,857.08
12/31/2019	$2,376,000	$113,142.92	$2,262,857.08	$0.00

Table (2)

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2016, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Interest payable	$34,031.82
	Notes payable		$34,031.82
	(To record transfer of accrued interest payable to notes payable)

December 31, 2016	Interest expense	$121,71.59
	Notes payable	$54,298.41
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2017	Interest expense	$118,986.67
	Notes payable	$57,013.33
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2018	Interest expense	$116,136.00
	Notes payable	$59,864.00
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2019	Interest expense	$113,142.92
	Notes payable	$2,262,857.08
	Cash		$2,376,000.00
	(To record payment of interest expense and interest payable)

Table (3)

2.

To determine

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

2.

Expert Solution

Explanation of Solution

Calculate carrying value of note:

Carrying value of note as on 1.1.2016 = Notes payable + Interest payable= $2,400,000 + $34,031.82= $2,434,031.82

Calculate total amount to be repaid of notes payable.

Amount to be repaid = Principal + Interest= ($2,400,000 −$200,000) + ($2,200,000 × 1% × 4)= $2,200,000 +$88,000= $2,288,000

Calculate gain recognized by the debtor.

Gain recognized by the debtor = Carrying value of note −Repaid amount of notes payable= $2,434,031.82 −$2,228,000= $146,031.82

Therefore, gain recognized by the debtor is $146,031.82. Because the repaid amount of notes is lesser than the current carrying value of the note and interest.

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Interest payable	$34,031.82
	Notes payable		$34,031.82
	(To record transfer of accrued interest payable to notes payable)

January 2, 2016	Notes payable	$146,031.82
	Gain on debt restructure		$146,031.82
	(To record gain on debt restructuring)

December 31, 2016	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2017	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2018	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2019	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

Table (4)

3.

To determine

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

3.

Expert Solution

Explanation of Solution

Calculate gain recognized by the debtor.

Gain recognized by the debtor = Carrying value of note −Fair value of stock=$2,434,031.82 −(160,000 shares × $14.50)= $2,434,031.82 −$2,320,000.00= $114,031.82

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Notes payable	$2,400,000
	Interest payable	$34,031.82
	Gain on Debt restructure		$114,031.82
	Common stock		$800,000
	Additional paid in capital on common stock (balancing figure)		$1,520,000.00
	(To record payment of debt restructuring)

Table (5)

Working note:

(2)Calculate common stock.

Common stock = Number of shares × Par value of common stock= 160,000 shares × $5= $800,000

4.

To determine

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

4.

Expert Solution

Explanation of Solution

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Notes payable	$2,400,000
	Interest payable	$34,031.82
	Gain on debt restructure		$134,031.82
	Gain on disposal of land		$100,000
	Land		$2,200,000.00
	(To record payment of debt restructuring)

Table (6)

Working notes:

(3)Calculate gain on debt restructure.

Gain on debt restructure = Fair value of land −Cost of land= $2,300,000 −$2,200,000= $100,000

(4)Calculate gain recognized by the debtor.

Gain recognized by the debtor (transfer of land)) = Carrying value of note −Fair value of land= $2,434,031.82 −$2,300,000= $134,031.82

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Answer 3

Question

Chapter 14, Problem 14P

1.

To determine

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2019, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

1.

Expert Solution

Explanation of Solution

Troubled Debt Restructuring:

A troubled debt restructuring happens if a creditor, for legal or economic reasons associated to a debtor’s financial complications, grants a concession to a debtor that would not be otherwise considered.

Calculate carrying value of note:

Carrying value of note as on 1.1.2016 = Notes payable + Interest payable= $2,400,000 + $34,031.82= $2,434,031.82

Calculate total amount to be repaid of notes payable.

Amount to be repaid = Principal + Interest= ($2,400,000 −$200,000) + ($2,200,000 × 8% × 4)= $2,200,000 +$704,000= $2,904,000

Therefore, no gain recognized by the debtor, because the repaid amount of notes is exceeds the current carrying value of the note and interest.

Calculate amount of restructuring agreement using effective interest rate method.

Particulars	Amount (A)	Present value factor (B)	Value of the Bonds (A × B)
Present value of principal	$2,200,000	0.822702	$1,809,944.44
Add: Present value of interest	$176,000	3.545951	$624,087.38
Restructuring agreement			$2,434,031.82

Table (1)

Note: The Present value of an ordinary annuity of $1 for 4 periods at 5% is 3.545951 (refer Table 4 in TVM Module). And the present value of $1 for 4 periods at 5% is 0.822702 (refer Table 3 in TVM Module).

Working note:

(1)Calculate present value interest amount.

Present value interest = Face value of bonds × Stated interest rate × Time period= $2,200,000 × 8% × 1212= $176,000

Calculate interest expense and principal reduction using amortization schedule.

AMORTIZATION SCHEDULE - NOTES PAYABLE
Date	Cash (A)	Interest expense ( B = Prior period D × 5%)	Notes payable (C = A –B)	Carrying Value of Note (D = Prior period D –C)
1/2/2016				$2,434,031.82
12/31/2016	$176,000	$121,701.59	$54,298.41	$2,379,733.41
12/31/2017	$176,000	$118,986.67	$57,013.33	$2,322,720.08
12/31/2018	$176,000	$116,136.00	$59,864.00	$2,262,857.08
12/31/2019	$2,376,000	$113,142.92	$2,262,857.08	$0.00

Table (2)

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2016, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Interest payable	$34,031.82
	Notes payable		$34,031.82
	(To record transfer of accrued interest payable to notes payable)

December 31, 2016	Interest expense	$121,71.59
	Notes payable	$54,298.41
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2017	Interest expense	$118,986.67
	Notes payable	$57,013.33
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2018	Interest expense	$116,136.00
	Notes payable	$59,864.00
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2019	Interest expense	$113,142.92
	Notes payable	$2,262,857.08
	Cash		$2,376,000.00
	(To record payment of interest expense and interest payable)

Table (3)

2.

To determine

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

2.

Expert Solution

Explanation of Solution

Calculate carrying value of note:

Carrying value of note as on 1.1.2016 = Notes payable + Interest payable= $2,400,000 + $34,031.82= $2,434,031.82

Calculate total amount to be repaid of notes payable.

Amount to be repaid = Principal + Interest= ($2,400,000 −$200,000) + ($2,200,000 × 1% × 4)= $2,200,000 +$88,000= $2,288,000

Calculate gain recognized by the debtor.

Gain recognized by the debtor = Carrying value of note −Repaid amount of notes payable= $2,434,031.82 −$2,228,000= $146,031.82

Therefore, gain recognized by the debtor is $146,031.82. Because the repaid amount of notes is lesser than the current carrying value of the note and interest.

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Interest payable	$34,031.82
	Notes payable		$34,031.82
	(To record transfer of accrued interest payable to notes payable)

January 2, 2016	Notes payable	$146,031.82
	Gain on debt restructure		$146,031.82
	(To record gain on debt restructuring)

December 31, 2016	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2017	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2018	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2019	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

Table (4)

3.

To determine

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

3.

Expert Solution

Explanation of Solution

Calculate gain recognized by the debtor.

Gain recognized by the debtor = Carrying value of note −Fair value of stock=$2,434,031.82 −(160,000 shares × $14.50)= $2,434,031.82 −$2,320,000.00= $114,031.82

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Notes payable	$2,400,000
	Interest payable	$34,031.82
	Gain on Debt restructure		$114,031.82
	Common stock		$800,000
	Additional paid in capital on common stock (balancing figure)		$1,520,000.00
	(To record payment of debt restructuring)

Table (5)

Working note:

(2)Calculate common stock.

Common stock = Number of shares × Par value of common stock= 160,000 shares × $5= $800,000

4.

To determine

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

4.

Expert Solution

Explanation of Solution

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Notes payable	$2,400,000
	Interest payable	$34,031.82
	Gain on debt restructure		$134,031.82
	Gain on disposal of land		$100,000
	Land		$2,200,000.00
	(To record payment of debt restructuring)

Table (6)

Working notes:

(3)Calculate gain on debt restructure.

Gain on debt restructure = Fair value of land −Cost of land= $2,300,000 −$2,200,000= $100,000

(4)Calculate gain recognized by the debtor.

Gain recognized by the debtor (transfer of land)) = Carrying value of note −Fair value of land= $2,434,031.82 −$2,300,000= $134,031.82

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Answer 4

Question

Chapter 14, Problem 14P

1.

To determine

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2019, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

1.

Expert Solution

Explanation of Solution

Troubled Debt Restructuring:

A troubled debt restructuring happens if a creditor, for legal or economic reasons associated to a debtor’s financial complications, grants a concession to a debtor that would not be otherwise considered.

Calculate carrying value of note:

Carrying value of note as on 1.1.2016 = Notes payable + Interest payable= $2,400,000 + $34,031.82= $2,434,031.82

Calculate total amount to be repaid of notes payable.

Amount to be repaid = Principal + Interest= ($2,400,000 −$200,000) + ($2,200,000 × 8% × 4)= $2,200,000 +$704,000= $2,904,000

Therefore, no gain recognized by the debtor, because the repaid amount of notes is exceeds the current carrying value of the note and interest.

Calculate amount of restructuring agreement using effective interest rate method.

Particulars	Amount (A)	Present value factor (B)	Value of the Bonds (A × B)
Present value of principal	$2,200,000	0.822702	$1,809,944.44
Add: Present value of interest	$176,000	3.545951	$624,087.38
Restructuring agreement			$2,434,031.82

Table (1)

Note: The Present value of an ordinary annuity of $1 for 4 periods at 5% is 3.545951 (refer Table 4 in TVM Module). And the present value of $1 for 4 periods at 5% is 0.822702 (refer Table 3 in TVM Module).

Working note:

(1)Calculate present value interest amount.

Present value interest = Face value of bonds × Stated interest rate × Time period= $2,200,000 × 8% × 1212= $176,000

Calculate interest expense and principal reduction using amortization schedule.

AMORTIZATION SCHEDULE - NOTES PAYABLE
Date	Cash (A)	Interest expense ( B = Prior period D × 5%)	Notes payable (C = A –B)	Carrying Value of Note (D = Prior period D –C)
1/2/2016				$2,434,031.82
12/31/2016	$176,000	$121,701.59	$54,298.41	$2,379,733.41
12/31/2017	$176,000	$118,986.67	$57,013.33	$2,322,720.08
12/31/2018	$176,000	$116,136.00	$59,864.00	$2,262,857.08
12/31/2019	$2,376,000	$113,142.92	$2,262,857.08	$0.00

Table (2)

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2016, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Interest payable	$34,031.82
	Notes payable		$34,031.82
	(To record transfer of accrued interest payable to notes payable)

December 31, 2016	Interest expense	$121,71.59
	Notes payable	$54,298.41
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2017	Interest expense	$118,986.67
	Notes payable	$57,013.33
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2018	Interest expense	$116,136.00
	Notes payable	$59,864.00
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2019	Interest expense	$113,142.92
	Notes payable	$2,262,857.08
	Cash		$2,376,000.00
	(To record payment of interest expense and interest payable)

Table (3)

2.

To determine

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

2.

Expert Solution

Explanation of Solution

Calculate carrying value of note:

Carrying value of note as on 1.1.2016 = Notes payable + Interest payable= $2,400,000 + $34,031.82= $2,434,031.82

Calculate total amount to be repaid of notes payable.

Amount to be repaid = Principal + Interest= ($2,400,000 −$200,000) + ($2,200,000 × 1% × 4)= $2,200,000 +$88,000= $2,288,000

Calculate gain recognized by the debtor.

Gain recognized by the debtor = Carrying value of note −Repaid amount of notes payable= $2,434,031.82 −$2,228,000= $146,031.82

Therefore, gain recognized by the debtor is $146,031.82. Because the repaid amount of notes is lesser than the current carrying value of the note and interest.

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Interest payable	$34,031.82
	Notes payable		$34,031.82
	(To record transfer of accrued interest payable to notes payable)

January 2, 2016	Notes payable	$146,031.82
	Gain on debt restructure		$146,031.82
	(To record gain on debt restructuring)

December 31, 2016	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2017	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2018	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2019	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

Table (4)

3.

To determine

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

3.

Expert Solution

Explanation of Solution

Calculate gain recognized by the debtor.

Gain recognized by the debtor = Carrying value of note −Fair value of stock=$2,434,031.82 −(160,000 shares × $14.50)= $2,434,031.82 −$2,320,000.00= $114,031.82

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Notes payable	$2,400,000
	Interest payable	$34,031.82
	Gain on Debt restructure		$114,031.82
	Common stock		$800,000
	Additional paid in capital on common stock (balancing figure)		$1,520,000.00
	(To record payment of debt restructuring)

Table (5)

Working note:

(2)Calculate common stock.

Common stock = Number of shares × Par value of common stock= 160,000 shares × $5= $800,000

4.

To determine

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

4.

Expert Solution

Explanation of Solution

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Notes payable	$2,400,000
	Interest payable	$34,031.82
	Gain on debt restructure		$134,031.82
	Gain on disposal of land		$100,000
	Land		$2,200,000.00
	(To record payment of debt restructuring)

Table (6)

Working notes:

(3)Calculate gain on debt restructure.

Gain on debt restructure = Fair value of land −Cost of land= $2,300,000 −$2,200,000= $100,000

(4)Calculate gain recognized by the debtor.

Gain recognized by the debtor (transfer of land)) = Carrying value of note −Fair value of land= $2,434,031.82 −$2,300,000= $134,031.82

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Answer 5

Chapter 14, Problem 14P

1.

To determine

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2019, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

1.

Expert Solution

Explanation of Solution

Troubled Debt Restructuring:

A troubled debt restructuring happens if a creditor, for legal or economic reasons associated to a debtor’s financial complications, grants a concession to a debtor that would not be otherwise considered.

Calculate carrying value of note:

Carrying value of note as on 1.1.2016 = Notes payable + Interest payable= $2,400,000 + $34,031.82= $2,434,031.82

Calculate total amount to be repaid of notes payable.

Amount to be repaid = Principal + Interest= ($2,400,000 −$200,000) + ($2,200,000 × 8% × 4)= $2,200,000 +$704,000= $2,904,000

Therefore, no gain recognized by the debtor, because the repaid amount of notes is exceeds the current carrying value of the note and interest.

Calculate amount of restructuring agreement using effective interest rate method.

Particulars	Amount (A)	Present value factor (B)	Value of the Bonds (A × B)
Present value of principal	$2,200,000	0.822702	$1,809,944.44
Add: Present value of interest	$176,000	3.545951	$624,087.38
Restructuring agreement			$2,434,031.82

Table (1)

Note: The Present value of an ordinary annuity of $1 for 4 periods at 5% is 3.545951 (refer Table 4 in TVM Module). And the present value of $1 for 4 periods at 5% is 0.822702 (refer Table 3 in TVM Module).

Working note:

(1)Calculate present value interest amount.

Present value interest = Face value of bonds × Stated interest rate × Time period= $2,200,000 × 8% × 1212= $176,000

Calculate interest expense and principal reduction using amortization schedule.

AMORTIZATION SCHEDULE - NOTES PAYABLE
Date	Cash (A)	Interest expense ( B = Prior period D × 5%)	Notes payable (C = A –B)	Carrying Value of Note (D = Prior period D –C)
1/2/2016				$2,434,031.82
12/31/2016	$176,000	$121,701.59	$54,298.41	$2,379,733.41
12/31/2017	$176,000	$118,986.67	$57,013.33	$2,322,720.08
12/31/2018	$176,000	$116,136.00	$59,864.00	$2,262,857.08
12/31/2019	$2,376,000	$113,142.92	$2,262,857.08	$0.00

Table (2)

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2016, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Interest payable	$34,031.82
	Notes payable		$34,031.82
	(To record transfer of accrued interest payable to notes payable)

December 31, 2016	Interest expense	$121,71.59
	Notes payable	$54,298.41
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2017	Interest expense	$118,986.67
	Notes payable	$57,013.33
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2018	Interest expense	$116,136.00
	Notes payable	$59,864.00
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2019	Interest expense	$113,142.92
	Notes payable	$2,262,857.08
	Cash		$2,376,000.00
	(To record payment of interest expense and interest payable)

Table (3)

2.

To determine

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

2.

Expert Solution

Explanation of Solution

Calculate carrying value of note:

Carrying value of note as on 1.1.2016 = Notes payable + Interest payable= $2,400,000 + $34,031.82= $2,434,031.82

Calculate total amount to be repaid of notes payable.

Amount to be repaid = Principal + Interest= ($2,400,000 −$200,000) + ($2,200,000 × 1% × 4)= $2,200,000 +$88,000= $2,288,000

Calculate gain recognized by the debtor.

Gain recognized by the debtor = Carrying value of note −Repaid amount of notes payable= $2,434,031.82 −$2,228,000= $146,031.82

Therefore, gain recognized by the debtor is $146,031.82. Because the repaid amount of notes is lesser than the current carrying value of the note and interest.

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Interest payable	$34,031.82
	Notes payable		$34,031.82
	(To record transfer of accrued interest payable to notes payable)

January 2, 2016	Notes payable	$146,031.82
	Gain on debt restructure		$146,031.82
	(To record gain on debt restructuring)

December 31, 2016	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2017	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2018	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2019	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

Table (4)

3.

To determine

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

3.

Expert Solution

Explanation of Solution

Calculate gain recognized by the debtor.

Gain recognized by the debtor = Carrying value of note −Fair value of stock=$2,434,031.82 −(160,000 shares × $14.50)= $2,434,031.82 −$2,320,000.00= $114,031.82

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Notes payable	$2,400,000
	Interest payable	$34,031.82
	Gain on Debt restructure		$114,031.82
	Common stock		$800,000
	Additional paid in capital on common stock (balancing figure)		$1,520,000.00
	(To record payment of debt restructuring)

Table (5)

Working note:

(2)Calculate common stock.

Common stock = Number of shares × Par value of common stock= 160,000 shares × $5= $800,000

4.

To determine

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

4.

Expert Solution

Explanation of Solution

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Notes payable	$2,400,000
	Interest payable	$34,031.82
	Gain on debt restructure		$134,031.82
	Gain on disposal of land		$100,000
	Land		$2,200,000.00
	(To record payment of debt restructuring)

Table (6)

Working notes:

(3)Calculate gain on debt restructure.

Gain on debt restructure = Fair value of land −Cost of land= $2,300,000 −$2,200,000= $100,000

(4)Calculate gain recognized by the debtor.

Gain recognized by the debtor (transfer of land)) = Carrying value of note −Fair value of land= $2,434,031.82 −$2,300,000= $134,031.82

Answer 6

Chapter 14, Problem 14P

1.

To determine

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2019, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

1.

Expert Solution

Explanation of Solution

Troubled Debt Restructuring:

A troubled debt restructuring happens if a creditor, for legal or economic reasons associated to a debtor’s financial complications, grants a concession to a debtor that would not be otherwise considered.

Calculate carrying value of note:

Carrying value of note as on 1.1.2016 = Notes payable + Interest payable= $2,400,000 + $34,031.82= $2,434,031.82

Calculate total amount to be repaid of notes payable.

Amount to be repaid = Principal + Interest= ($2,400,000 −$200,000) + ($2,200,000 × 8% × 4)= $2,200,000 +$704,000= $2,904,000

Therefore, no gain recognized by the debtor, because the repaid amount of notes is exceeds the current carrying value of the note and interest.

Calculate amount of restructuring agreement using effective interest rate method.

Particulars	Amount (A)	Present value factor (B)	Value of the Bonds (A × B)
Present value of principal	$2,200,000	0.822702	$1,809,944.44
Add: Present value of interest	$176,000	3.545951	$624,087.38
Restructuring agreement			$2,434,031.82

Table (1)

Note: The Present value of an ordinary annuity of $1 for 4 periods at 5% is 3.545951 (refer Table 4 in TVM Module). And the present value of $1 for 4 periods at 5% is 0.822702 (refer Table 3 in TVM Module).

Working note:

(1)Calculate present value interest amount.

Present value interest = Face value of bonds × Stated interest rate × Time period= $2,200,000 × 8% × 1212= $176,000

Calculate interest expense and principal reduction using amortization schedule.

AMORTIZATION SCHEDULE - NOTES PAYABLE
Date	Cash (A)	Interest expense ( B = Prior period D × 5%)	Notes payable (C = A –B)	Carrying Value of Note (D = Prior period D –C)
1/2/2016				$2,434,031.82
12/31/2016	$176,000	$121,701.59	$54,298.41	$2,379,733.41
12/31/2017	$176,000	$118,986.67	$57,013.33	$2,322,720.08
12/31/2018	$176,000	$116,136.00	$59,864.00	$2,262,857.08
12/31/2019	$2,376,000	$113,142.92	$2,262,857.08	$0.00

Table (2)

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2016, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Interest payable	$34,031.82
	Notes payable		$34,031.82
	(To record transfer of accrued interest payable to notes payable)

December 31, 2016	Interest expense	$121,71.59
	Notes payable	$54,298.41
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2017	Interest expense	$118,986.67
	Notes payable	$57,013.33
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2018	Interest expense	$116,136.00
	Notes payable	$59,864.00
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2019	Interest expense	$113,142.92
	Notes payable	$2,262,857.08
	Cash		$2,376,000.00
	(To record payment of interest expense and interest payable)

Table (3)

Answer 7

Chapter 14, Problem 14P

1.

To determine

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2019, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

Answer 8

1.

Expert Solution

Explanation of Solution

Troubled Debt Restructuring:

A troubled debt restructuring happens if a creditor, for legal or economic reasons associated to a debtor’s financial complications, grants a concession to a debtor that would not be otherwise considered.

Calculate carrying value of note:

Carrying value of note as on 1.1.2016 = Notes payable + Interest payable= $2,400,000 + $34,031.82= $2,434,031.82

Calculate total amount to be repaid of notes payable.

Amount to be repaid = Principal + Interest= ($2,400,000 −$200,000) + ($2,200,000 × 8% × 4)= $2,200,000 +$704,000= $2,904,000

Therefore, no gain recognized by the debtor, because the repaid amount of notes is exceeds the current carrying value of the note and interest.

Calculate amount of restructuring agreement using effective interest rate method.

Particulars	Amount (A)	Present value factor (B)	Value of the Bonds (A × B)
Present value of principal	$2,200,000	0.822702	$1,809,944.44
Add: Present value of interest	$176,000	3.545951	$624,087.38
Restructuring agreement			$2,434,031.82

Table (1)

Note: The Present value of an ordinary annuity of $1 for 4 periods at 5% is 3.545951 (refer Table 4 in TVM Module). And the present value of $1 for 4 periods at 5% is 0.822702 (refer Table 3 in TVM Module).

Working note:

(1)Calculate present value interest amount.

Present value interest = Face value of bonds × Stated interest rate × Time period= $2,200,000 × 8% × 1212= $176,000

Calculate interest expense and principal reduction using amortization schedule.

AMORTIZATION SCHEDULE - NOTES PAYABLE
Date	Cash (A)	Interest expense ( B = Prior period D × 5%)	Notes payable (C = A –B)	Carrying Value of Note (D = Prior period D –C)
1/2/2016				$2,434,031.82
12/31/2016	$176,000	$121,701.59	$54,298.41	$2,379,733.41
12/31/2017	$176,000	$118,986.67	$57,013.33	$2,322,720.08
12/31/2018	$176,000	$116,136.00	$59,864.00	$2,262,857.08
12/31/2019	$2,376,000	$113,142.92	$2,262,857.08	$0.00

Table (2)

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2016, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Interest payable	$34,031.82
	Notes payable		$34,031.82
	(To record transfer of accrued interest payable to notes payable)

December 31, 2016	Interest expense	$121,71.59
	Notes payable	$54,298.41
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2017	Interest expense	$118,986.67
	Notes payable	$57,013.33
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2018	Interest expense	$116,136.00
	Notes payable	$59,864.00
	Cash		$176,000.00
	(To record payment of interest expense and interest payable)

December 31, 2019	Interest expense	$113,142.92
	Notes payable	$2,262,857.08
	Cash		$2,376,000.00
	(To record payment of interest expense and interest payable)

Table (3)

Answer 9

1.

Expert Solution

Answer 10

1.

Expert Solution

Answer 11

Expert Solution

Answer 12

2.

To determine

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

2.

Expert Solution

Explanation of Solution

Calculate carrying value of note:

Carrying value of note as on 1.1.2016 = Notes payable + Interest payable= $2,400,000 + $34,031.82= $2,434,031.82

Calculate total amount to be repaid of notes payable.

Amount to be repaid = Principal + Interest= ($2,400,000 −$200,000) + ($2,200,000 × 1% × 4)= $2,200,000 +$88,000= $2,288,000

Calculate gain recognized by the debtor.

Gain recognized by the debtor = Carrying value of note −Repaid amount of notes payable= $2,434,031.82 −$2,228,000= $146,031.82

Therefore, gain recognized by the debtor is $146,031.82. Because the repaid amount of notes is lesser than the current carrying value of the note and interest.

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Interest payable	$34,031.82
	Notes payable		$34,031.82
	(To record transfer of accrued interest payable to notes payable)

January 2, 2016	Notes payable	$146,031.82
	Gain on debt restructure		$146,031.82
	(To record gain on debt restructuring)

December 31, 2016	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2017	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2018	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2019	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

Table (4)

Answer 13

2.

To determine

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

Answer 14

2.

Expert Solution

Explanation of Solution

Calculate carrying value of note:

Carrying value of note as on 1.1.2016 = Notes payable + Interest payable= $2,400,000 + $34,031.82= $2,434,031.82

Calculate total amount to be repaid of notes payable.

Amount to be repaid = Principal + Interest= ($2,400,000 −$200,000) + ($2,200,000 × 1% × 4)= $2,200,000 +$88,000= $2,288,000

Calculate gain recognized by the debtor.

Gain recognized by the debtor = Carrying value of note −Repaid amount of notes payable= $2,434,031.82 −$2,228,000= $146,031.82

Therefore, gain recognized by the debtor is $146,031.82. Because the repaid amount of notes is lesser than the current carrying value of the note and interest.

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Interest payable	$34,031.82
	Notes payable		$34,031.82
	(To record transfer of accrued interest payable to notes payable)

January 2, 2016	Notes payable	$146,031.82
	Gain on debt restructure		$146,031.82
	(To record gain on debt restructuring)

December 31, 2016	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2017	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2018	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

December 31, 2019	Notes payable	$22,000
	Cash		$22,000
	(To record payment of notes payable)

Table (4)

Answer 15

2.

Expert Solution

Answer 16

2.

Expert Solution

Answer 17

Expert Solution

Answer 18

3.

To determine

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

3.

Expert Solution

Explanation of Solution

Calculate gain recognized by the debtor.

Gain recognized by the debtor = Carrying value of note −Fair value of stock=$2,434,031.82 −(160,000 shares × $14.50)= $2,434,031.82 −$2,320,000.00= $114,031.82

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Notes payable	$2,400,000
	Interest payable	$34,031.82
	Gain on Debt restructure		$114,031.82
	Common stock		$800,000
	Additional paid in capital on common stock (balancing figure)		$1,520,000.00
	(To record payment of debt restructuring)

Table (5)

Working note:

(2)Calculate common stock.

Common stock = Number of shares × Par value of common stock= 160,000 shares × $5= $800,000

Answer 19

3.

To determine

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

Answer 20

3.

Expert Solution

Explanation of Solution

Calculate gain recognized by the debtor.

Gain recognized by the debtor = Carrying value of note −Fair value of stock=$2,434,031.82 −(160,000 shares × $14.50)= $2,434,031.82 −$2,320,000.00= $114,031.82

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Notes payable	$2,400,000
	Interest payable	$34,031.82
	Gain on Debt restructure		$114,031.82
	Common stock		$800,000
	Additional paid in capital on common stock (balancing figure)		$1,520,000.00
	(To record payment of debt restructuring)

Table (5)

Working note:

(2)Calculate common stock.

Common stock = Number of shares × Par value of common stock= 160,000 shares × $5= $800,000

Answer 21

3.

Expert Solution

Answer 22

3.

Expert Solution

Answer 23

Expert Solution

Answer 24

4.

To determine

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

4.

Expert Solution

Explanation of Solution

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Notes payable	$2,400,000
	Interest payable	$34,031.82
	Gain on debt restructure		$134,031.82
	Gain on disposal of land		$100,000
	Land		$2,200,000.00
	(To record payment of debt restructuring)

Table (6)

Working notes:

(3)Calculate gain on debt restructure.

Gain on debt restructure = Fair value of land −Cost of land= $2,300,000 −$2,200,000= $100,000

(4)Calculate gain recognized by the debtor.

Gain recognized by the debtor (transfer of land)) = Carrying value of note −Fair value of land= $2,434,031.82 −$2,300,000= $134,031.82

Answer 25

4.

To determine

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

Answer 26

4.

Expert Solution

Explanation of Solution

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

Date	Account titles and Explanation	Debit	Credit
January 2, 2016	Notes payable	$2,400,000
	Interest payable	$34,031.82
	Gain on debt restructure		$134,031.82
	Gain on disposal of land		$100,000
	Land		$2,200,000.00
	(To record payment of debt restructuring)

Table (6)

Working notes:

(3)Calculate gain on debt restructure.

Gain on debt restructure = Fair value of land −Cost of land= $2,300,000 −$2,200,000= $100,000

(4)Calculate gain recognized by the debtor.

Gain recognized by the debtor (transfer of land)) = Carrying value of note −Fair value of land= $2,434,031.82 −$2,300,000= $134,031.82

Answer 27

4.

Expert Solution

Answer 28

4.

Expert Solution

Answer 29

Expert Solution

Answer 30

Ch. 14 - Prob. 1GI Ch. 14 - Why does issuing debt result in an income tax...Ch. 14 - What is a bond? Define face value, maturity date,...Ch. 14 - What is the difference between a mortgage bond and...Ch. 14 - Prob. 5GI Ch. 14 - Prob. 6GI Ch. 14 - Prob. 7GI Ch. 14 - Prob. 8GI Ch. 14 - Prob. 9GI Ch. 14 - Prob. 10GI

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31 st December 2019, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

Videos

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2019, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

Explanation of Solution

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

Explanation of Solution

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

Explanation of Solution

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

Explanation of Solution

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Chapter 14 Solutions

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31 st December 2019, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

Videos

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31st December 2019, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.

Explanation of Solution

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date to December 31, 2019, forgives the interest owed, reduces the principal by $200,000, and reduces the interest rate to 1%.

Explanation of Solution

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts 160,000 shares of Corporation O, par value of common stock, which is currently selling for $14.50 per share, in full settlement of the debt.

Explanation of Solution

Prepare journal entries to record the debt restructuring agreement assuming the bank accepts land with a fair value of $2,300,000 in full settlement of the debt. The land is being carried on Corporation O’s books at a cost of $2,200,000.

Explanation of Solution

Want to see more full solutions like this?

Chapter 14 Solutions

Prepare journal entries to record the debt restructuring agreement and all subsequent interest payments assuming the bank extends the repayment date as on 31^st December 2019, forgives the accrued interest owed, reduces the principal by $200,000 and reduces the interest to 8%.