Wello Contractors purchased construction equipment with an invoiced price of $800,000 from Capital Manufacturers on 1 January 20x1, and issued a two-year note to Capital Manufacturers. The interest rate on the note was 8% payable annually on 31 December each year. Wello Contractors duly paid the interest on 31 December 20x1, but began to experience financial difficulties in 20x2. To avoid going into bankruptcy, Capital Manufacturers and Wello Contractors agreed to restructure the note on the following terms on 1 January 20x3:

(a) The amount of the note was reduced to $500,000.

(b) The interest for 20x2 was forgiven.

(c) The maturity date of the loan was extended by two years to 31 December 20x4.

(d) The interest rate was reduced to 5% for 20x3 and 20x4, payable on 31 December each year.

Capital Manufacturers deemed the note due from Wello Contractors as individually significant.

Required

1. What is the impairment loss incurred by Capital Manufacturers following the debt restructuring?
2. Prepare journal entries on 1 January 20x3, 31 December 20x3 and 31 December 20x4.