debt restructuring Problem

On December 31, 2014, theAmerican Bankenters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a14%, issued at par, $3,231,000note receivable by the following modifications:

1.	Reducing theprincipalobligation from $3,231,000to $2,584,800.
2.	Extending the maturity date from December 31, 2014, to January 1, 2018.
3.	Reducing theinterest ratefrom14% to10%.

Barkley pays interest at the end of each year. On January 1, 2018, Barkley Company pays $2,584,800in cash to American Bank. (a)Will the gain recorded by Barkley be equal to the loss recorded by American Bank under thedebt restructuring? (b)Can Barkley Company record againunder the term modification mentioned above? (c)Assuming that the interest rate Barkley should use to compute interest expense in future periods is 1.4276%, prepare the interest payment schedule of the note for Barkley Company after the debt restructuring.(Round answers to 0 decimal places, e.g. 38,548.)

BARKLEY COMPANY Interest Payment Schedule After Debt Restructuring Effective-Interest Rate
Date	Cash Paid	Interest Expense	Reduction of Carrying Amount	Carrying Amount of Note
12/31/14	$	$	$	$
12/31/15
12/31/16
12/31/17					*
Total	$	$	$

* Difference due to rounding (d)Prepare the interest payment entry for Barkley Company on December 31, 2016.(Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.Creditaccount titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2016

(e)What entry should Barkley make on January 1, 2018?(Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date	Account Titles and Explanation	Debit	Credit
December 31, 2018

On December 31, 2014, the American Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 14%, issued at par, $3,231,000 note receivable by the following modifications: 1 . 2 . 3 . Reducing the principal obligation from $3,231,000 to $2,584,800. Extending the maturity date from December 31, 2014, to January 1, 2018. Reducing the interest rate from 14% to 10%. Barkley pays interest at the end of each year. On January 1, 2018, Barkley Company pays $2,584,800 in cash to American Bank. (a) Will the gain recorded by Barkley be equal to the loss recorded by American Bank under the debt restructuring? (b) Can Barkley Company record a gain under the term modification mentioned above? (c) Assuming that the interest rate Barkley should use to compute interest expense in future periods is 1.4276%, prepare the interest payment schedule of the note for Barkley Company after the debt restructuring. (Round answers to 0 decimal places, e.g. 38,548.) Date BARKLEY COMPANY Interest Payment Schedule After Debt Restructuring Effective-Interest Rate Reduction Carrying Cash Interest of Carrying Amount of Paid Expense Amount Note $ $ $ $ 12/31/14 12/31/15 12/31/16 12/31/17 * $ $ $ Total * Difference due to rounding (d) Prepare the interest payment entry for Barkley Company on December 31, 2016. (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Debit Credit Explanation December 31, 2016 (e) What entry should Barkley make on January 1, 2018? (Round answers to 0 decimal places, e.g. 38,548. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date December 31, 2018 Account Titles and Explanation Debit Credit