On December 31, 2020, the Thomas Company is in default on its 10% bank loan, which is currently due. The company owes $1,000,000 on the loan and $50,000 in back interest. The bank has agreed to reduce the loan principal by $200,000, forgive the $50,000 of past interest, extend the maturity date by 4 years, and reduce the interest rate to 6%. Interest payments are due each December 31.

1. Prepare the journal entry by Thomas Company to record the loan restructuring. Original amount owed $1,000,000 Interest $25

2. Prepare the journal entry by Thomas to record the first loan payment on December 31, 2021.