In the latter part of 2007, Odessa Company experienced severe financial pressure and was in default of meeting interest payments on long-term notes of $6,000,000 due on December 31, 2012. The interest rate on the debt was 11%, payable semiannually on June 30 and December 31. In an agreement with Modern Investment Corporation, Odessa obtained acceptance of a change in principal and interest terms for the remaining 5-year life of the notes. The changes in terms are as follows:

(a) A reduction of principal of $475,000.

(b) A reduction in the interest rate to 8%.

(c) Odessa agreed to pay on December 31, 2007, both the $660,000 of interest in arrears and the normal interest payment under the old terms.