Exercise 14-22 (Part Level Submission)

On December 31, 2020, American Bank enters into a debt restructuring agreement with Flint Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $3,890,000 note receivable by the following modifications:

1.		Reducing the principal obligation from $3,890,000 to $3,112,000.
2.		Extending the maturity date from December 31, 2020, to January 1, 2024.
3.		Reducing the interest rate from 12% to 10%.

Flint pays interest at the end of each year. On January 1, 2024, Flint Company pays $3,112,000 in cash to American Bank.

(a)

	Your answer is correct.

Will the gain recorded by Flint be equal to the loss recorded by American Bank under the debt restructuring?

NoYes

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Attempts: 2 of 3 used

(b)

	Your answer is correct.

Can Flint Company record a gain under the term modification mentioned above?

NoYes

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Attempts: 1 of 3 used

(c)

	Your answer is partially correct. Try again.

Assuming that the interest rate Flint should use to compute interest expense in future periods is 1.4276%, prepare the interest payment schedule of the note for Flint Company after the debt restructuring. (Round answers to 0 decimal places, e.g. 38,548.)

FLINT COMPANY Interest Payment Schedule After Debt Restructuring Effective-Interest Rate
Date		Cash Paid		Interest Expense		Reduction of Carrying Amount		Carrying Amount of Note
12/31/20		$		$		$		$
12/31/21
12/31/22
12/31/23
Total		$		$		$