March Madness Corporation is having financial difficulty and therefore has asked Atlantic Coast Bank to restructure its $3 million note outstanding. The present note has 3 years remaining and pays a current rate of interest of 10%. The present market rate for a loan of this nature is 12%. The note was issued at its face value. The note pays interest annually.

REQUIRED:

Presented below are three independent situations. Prepare the journal entry that March Madness Corporation would make for each of these restructurings:

(a) Atlantic Coast agrees to take an equity interest in March Madness by accepting common stock valued at $2,500,000 in exchange for relinquishing its claim on this note. The common stock has a par value of $2,100,000.

(b) Atlantic Coast agrees to modify the terms of the note, indicating that March Madness does not have to pay any interest on the note over the three year period.

(c) Atlantic Coast agrees to reduce the principal balance due to $2,500,000 and March Madness does not have to pay any interest on the note over the three year period.