Loozends, Inc., owes Prosperity Bank a $750,000, 10-year, 15% note issued at par. The note plus accrued interest of $112,500 is due on December 31, 2013. On that date, Loozends negotiates a new set of terms whereby the bank agrees to forgive $112,500 being the interest due for 2013; reduce the interest rate to 6% and the maturity value of the note to $450,000 after Loozends pays a cash amount of $252,000; and extend the maturity date of the note to December 31, 2017. The current market rate is 12%. Both parties have adopted IFRS.

Required:

1. Determine if this transaction is a modification [minor restructure] or a settlement [major restructure]. State your reasons supported by a clearly organized set of computations.

2. Determine the amount at which the debt is to be carried in the books of Loozend under the new terms. Show clear computations to support your answer.

3. Prepare all necessary journal entries, on December 31, 2013, on the books of Loozends after the revised terms of this transaction, take effect.