Fish Spotters, Inc. purchased a single-engine aircraft from National Aviation on January 1, 2008. Fish Spotters paid \($55,000\) cash and signed a three-year, 8% note for the remaining \($45,000\). Terms of the note require Fish Spotters to pay accrued interest annually on December 31 with the remaining \($45,000\) balance due with the last interest payment on December 31, 2010.
Fish Spotters made the first two interest payments but was unable to make the principal and interest payment due December 31, 2010. On January 1, 2011 National Aviation agreed to restructure the note receivable.
Required:
Provide the journal entries that National Aviation would record under each of the following independent scenarios.
1. It agrees to take the aircraft back in return for the outstanding note. Assume that the aircraft has a market value of \($40,000\).
2. It agrees to accept a \($5,000\) cash payment and a new \($35,000\) note receivable due in five years. The note stipulates payment of \($4,200\) annual interest each December 31. Prepare the note receivable amortization table through December 31, 2015 and all entries through December 31, 2013.