Cardinal & Gold Real Estate Company borrowed $100.0 million in an arms-length transaction on January 1, 2014. Terms of the loan are as follows: 

• Interest at 8% is to be paid annually in arrears (end of each year) 

• Principal is to be paid in full on December 31, 2023. 

• There were no debt issuance costs. On January 1, 2019, due to a lower interest rate environment, the Company’s CFO completed negotiations with the lender to refinance the terms of the debt. The lender agrees to adjust the interest to 5.5% (paid annually in arrears). The maturity date remains the same. There were no debt modification costs. The fair market value of the debt instrument on January 1, 2019, is $93.0 million. The loan refinancing described above was discussed in the weekly accounting and reporting issues meeting. In that meeting there were two views regarding the loan refinancing – one view was that it should be considered a debt extinguishment and the other view was that it should be considered a modification of debt. You have the responsibility of conducting the research and writing a memo to summarize and conclude on the appropriate treatment for the refinancing. Problems: 

1. Prepare the Company’s analysis and conclude on the appropriate accounting for the adjustments to the terms of the debt arrangement. Your analysis should address both alternatives and conclude as to why one is the most appropriate. Be sure that your analysis links facts of the case to the ASC codification guidance and state any judgments you make in determining the conclusion. 

2. As an appendix to your analysis, include for each alternative the journal entries required as of the date of the refinancing as well as journal entries for each year end after the debt modification through and including December 31, 2023 (December 31 year end journal entries only; no need to consider monthly or quarterly entries for this case). Please include a summary description for each journal entry as would be presented to a “non-accountant”.