1.Gaming Inc. issued a debenture bond to Karamoutz Bank to finance new technology it developed. The debenture was for $500,000, issued at face value, with a 10-year term and interest payable at 10%. Gaming Inc.'s new technology proved not to be technically feasible and caused it to go into financial distress. The debenture is due today, December 31, 2020, and Gaming does not have the funds to repay the debenture or the interest. As a result, Karamoutz agreed to extend the debenture due date for five more years and reduce the principal amount to $300,000 in exchange for receiving 20,000 common shares of Gaming, currently trading at $5 per share. Interest will still be payable at 10% and will continue to be due annually on December 31 of each year. The current market rate is 12%. Gaming prepares financial statements in accordance with IFRS.

Instructions

Using (1) factor tables, (2) a financial calculator, or (3) Excel function PV, what are all the necessary journal entries on the books of Gaming Inc. from the time of restructuring the debenture through maturity. Round to the nearest dollar.

2.At December 31, 2019, Shutdown Manufacturing Limited had outstanding a $300,000, 12% note payable to Thornton National Bank. Dated January 1, 2017, the note was issued at par and due on December 31, 2020, with interest payable each December 31. During 2020, Shutdown notified Thornton that it might be unable to meet the scheduled December 31, 2020 payment of principal and interest because of financial difficulties. On September 30, 2020, Thornton sold the note, including interest accrued since December 31, 2019, for $280,000 to Orsini Foundry, one of Shutdown's oldest and largest customers. On December 31, 2020, Orsini agreed to accept inventory that cost $240,000 but was worth $315,000 from Shutdown in full settlement of the note. Thornton, Shutdown, and Orsini prepare financial statements in accordance with IFRS.

Instructions

a.Prepare the journal entries to record the September 30, 2020 transaction on the books of Thornton, Shutdown, and Orsini. For each company, indicate whether the transaction is a restructuring of troubled debt.

b.Prepare the journal entries to record the December 31, 2020 transaction on the books of Shutdown and Orsini. For each company, indicate whether this transaction is a restructuring of troubled debt.