On December 31, 2023, Green Bank enters into a debt restructuring agreement with Troubled Inc., which is now experiencing financial trouble. The bank agrees to restructure a $2-million, 12% note receivable issued at par by the following modifications:

1. Reducing the principal obligation from $2 million to $1.9 million

2. Extending the maturity date from December 31, 2023, to December 31, 2026

3. Reducing the interest rate from 12% to 10%

Troubled pays interest at the end of each year. On January 1, 2027, Troubled pays $1.9 million in cash to Green Bank. Troubled prepares financial statements in accordance with IFRS 9.

Instructions

a. Using (1) factor tables, (2) a financial calculator, or (3) Excel function PV, determine whether or not Troubled should record a gain.

b. Prepare an entry at December 31, 2023, based on the results of your calculation.

c. Prepare an effective interest amortization table for the remaining term of the note. Round to the nearest dollar.

d. Prepare the interest payment entry for Troubled on December 31, 2025, and the entry on January 1, 2027.

e. Assume instead that Troubled follows ASPE. Using (1) a financial calculator or (2) Excel function Rate, calculate the rate of interest that Troubled should use to calculate its interest expense in future periods.  Round the interest rate calculated to four decimal places.

f. Continuing the assumption of following ASPE, prepare an effective interest amortization table for the remaining term of the note. Round to the nearest dollar.

g. Continuing the assumption of following ASPE, prepare the interest payment entry for Troubled on December 31, 2025, and the entry on January 1, 2027.