Moriarty Co. is experiencing financial difficulties. Income has exhibited a downward trend, and the company reported its
Question:
Moriarty Co. is experiencing financial difficulties. Income has exhibited a downward trend, and the company reported its first loss in company history this past year. The firm has been unable to service its debt and, as a result, has missed two semiannual interest payments. In an attempt to turn the company around, management has negotiated a modification of its debt terms with bondholders. These modified terms are effective January 1, 2011. The bonds are $10,000,000, 10-year, 10% bonds that were issued on January 2, 2006, and currently have an unamortized premium of $210,000.
Prepare the necessary journal entries on Moriarty’s books for each of the following independent situations.
(a) Bondholders agree to forgive past-due interest and reduce the interest rate on the debt from 10% to 5%.
(b) Bondholders agree to forgive past-due interest and forgive $3,000,000 of the face amount of the debt.
(c) Bondholders agree to forgive past-due interest, reduce the interest rate on the debt from 10% to 6%, and forgive $2,000,000 of the face value of the debt.
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
Step by Step Answer:
a Maturity value of bonds 10000000 Interest 10000000 005 5 years 2500000 Total payments to be made 1...View the full answer
Intermediate Accounting
ISBN: 978-0324592375
17th Edition
Authors: James D. Stice, Earl K. Stice, Fred Skousen
