Daniel Perkins is the sole shareholder of Perkins Inc., which is currently under protection of the U.S. bankruptcy court. As a "debtor in possession," he has negotiated the following revised loan agreement with United Bank. Perkins Inc.'s $600,000, 12%, 10-year note was refinanced with a $600,000, 5%, 10-year note. Perkins has a market rate of interest of 15%.
Instructions
a. What is the accounting nature of this transaction?
b. Prepare the journal entry to record this refinancing on the books of Perkins Inc.