PROBLEM 10-31 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. PROBLEMS SHORT-TERM LOANS EXPECTED TO BE REFINANCED The following information comes from the financial statements of Burton Davis Company. Current assets Accounts payable Short-term loan payable Long-term debt Total liabilities Total stockholders' equity $ 75,000 50,000 60,000 1 00,000 300,000 200,000 Burton Davis has arranged with its bank to refinance its short-term loan when it becomes due in 3 months. The new loan wiU have a term of 5 years. Instructions: 1. Compute the following ratio values.

(a) Current ratio

(b) Debt-to-equity ratio

(c) Debt ratio 2. If you were the auditor of Burton Davis' financial statements, how would you con- vince yourself of the validity of the refinancing agreement?