Use the same information as in E14.22 above except that American Bank reduced the principal to $1,900,000 rather than $2,400,000. On January 1, 2024, Barkley pays $1,900,000 in cash to American Bank for the principal. 

In E14.22

On December 31, 2020, American 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, 2020, to January 1, 2024.

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

Barkley pays interest at the end of each year. On January 1, 2024, Barkley Company pays $2,400,000 in cash to American Bank.

Instructions

a. Can Barkley Company record a gain under this term modification? If yes, compute the gain for Barkley Company.

b. Prepare the journal entries to record the gain on Barkley’s books.

c. What interest rate should Barkley use to compute its interest expense in future periods? Will your answer be the same as in E14.22 above? Why or why not?

d. Prepare the interest payment schedule of the note for Barkley Company after the debt restructuring.

e. Prepare the interest payment entries for Barkley Company on December 31, of 2021, 2022, and 2023.

f. What entry should Barkley make on January 1, 2024?