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During 2018, Company Z was encountering financial difficulties and seemed likely to default on a $300,000, 10%, three-year note dated January 1, 2016, payable to

During 2018, Company Z was encountering financial difficulties and seemed likely to default on a $300,000, 10%, three-year note dated January 1, 2016, payable to Third Bank. Interest was last paid on December 31, 2016. On January 3, 2018, Company Z and Third Bank negotiated a modification of terms of the debt agreement. The terms of the agreement were:

  • The bank forgave the overdue interest payment from 2017.
  • The bank agreed to one remaining interest payment of 30,000.
  • The bank agreed to reduce the principle to $275,000, with both principle and interest due January 3, 2019.

Company Z incurred $10,000 of legal fees to negotiate the restructuring of the note.

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