On December 31, 2017, the Flint Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial trouble. The bank agrees to restructure a 12%, issued at par, $3,500,000 note receivable by the following modifications:

1.

Reducing the principal obligation from $3,500,000 to $2,360,000.

2.

Extending the maturity date from December 31, 2017, to January 1, 2021.

3.

Reducing the interest rate from 12% to 10%.


Barkley pays interest at the end of each year. On January 1, 2021, Barkley Company pays $2,360,000 in cash to Flint Bank.

Answer the following questions related to Flint Bank (creditor).

1. Compute the loss Flint Bank will suffer under this new term modification.

Loss on restructuring debt: $__________

2. Prepare the journal entry to record the loss on Flint’s books.

Date Account Titles & Explanation Debit Credit

12/31/17 _______________________

_______________________

3. Prepare the interest receipt schedule for Flint Bank after the debt restructuring.

Date Cash Received Interest Revenue Increase in Carrying Amount Carrying Amount of Note

12/31/17

12/31/18

12/31/19

12/31/20

Total _____________ ________________ ________________________ ___________________

4. Prepare the interest receipt entry for Flint Bank on December 31, 2018, 2019, and 2020.

Date Account Titles & Explanation Debit Credit

12/31/18 _______________________

_______________________

_______________________

12/31/19 _______________________

_______________________

_______________________

12/31/20 _______________________

_______________________

_______________________

5. What entry should Flint Bank make on January 1, 2021?

What entry should Flint Bank make on January 1, 2021?

Date Account Titles & Explanation Debit Credit

1/1/21 _______________________

_______________________

_______________________