Use the same information as in E14-18 except that Sterling Bank reduced the principal to £1,900,000 rather than £2,400,000. On January 1, 2019, Barkley pays £1,900,000 in cash to Sterling Bank for the principal.

Instructions

(a) Prepare the journal entries to record the loan modification for Barkley.

(b) Prepare the amortization schedule of the note for Barkley Company after the debt modification.

(c) Prepare the interest payment entries for Barkley Company on December 31 of 2016, 2017, and 2018.

(d) What entry should Barkley make on January 1, 2019?

Data From E14-18

On December 31, 2015, Sterling Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure
a 12%, issued at par, £3,000,000 note receivable by the following modifications:
1. Reducing the principal obligation from £3,000,000 to £2,400,000.
2. Extending the maturity date from December 31, 2015, to January 1, 2019.
3. Reducing the interest rate from 12% to 10%. Barkley’s market rate of interest is 15%.

Barkley pays interest at the end of each year. On January 1, 2019, Barkley Company pays £2,400,000 in cash to Sterling Bank.

Instructions
(a) Can Barkley Company record a gain under the term modification mentioned above? Explain.
(b) Prepare the amortization schedule of the note for Barkley Company after the debt modification.
(c) Prepare the interest payment entry for Barkley Company on December 31, 2017.
(d) What entry should Barkley make on January 1, 2019?