On January 1, the company obtained a $10,000, 8% loan. The $800 interest is payable at the end of each year, with the principal amount to be repaid in five years. As of the end of the year, the first year’s interest of $800 is not yet paid because the company is experiencing financial difficulties. The company negotiated a restructuring of the loan. The payment of all of the interest ($4,000 = $800 × 5 years) will be delayed until the end of the loan term. In addition, the amount of principal repayment will be dropped from $10,000 to $5,000.

(1) Make the journal entry necessary on the company’s books to record this debt restructuring.

(2) Compute the amount of interest expense that will be recognized next year.