Jake corp owes $440,000 to Flagship Bank on a 10 year 8% note, during december 31,2024. The note was issued at par. Because Jake Corp. is in financial trouble, Flagship Bank agrees to extend the maturity date to december 31,2026, reduce the principal to $360,000 and reduce the interest rate to 4% payable annually on December 31. The market rate is currently 4%. Both Jake Corp. and Flagship Bank prepare financial statements according to IFRS.

Required: ROUND CURRENCY TO 2 DECIMAL PLACES

1. Explain why this should be accounted for as a settlement as opposed to a modification regarding the restructuring of Jake Corp.s debt.

2. Prepare the appropriate journal entry(ies) on Jake Corp.s books for December 31,2024,2025 and 2026

3. Prepare the entry for Flagship Bank on December 31,2024