EXERCISE 10-30 MODIFICATION OF DEBT TERMS 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 2 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 Januar)' 1, 2002. The bonds are $10,000,000, 10-year, 10% bonds that were issued on January 2, 1997, and currently have an unamortized premium of $210,000. Prepare the necessar)^ 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.