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Matrix Corporation is experiencing financial difficulty and has met with their creditor (BNS) to explore their options related to a $2 million, 8% note payable
Matrix Corporation is experiencing financial difficulty and has met with their creditor (BNS) to explore their options related to a $2 million, 8% note payable that is outstanding. The note was issued on September 1, 2020, when the market rate of interest was 8%. There are two years remaining on the note and the current market rate of interest is 10%. Matrix and BNS prepare financial statements in accordance with IFRS.
For each of the following independent situations prepare the journal entry that both Matrix and BNS would on their books.
- BNS agrees to modify the terms so that Matrix is not paying any interest on the note for the remaining two years.
- BNS agrees to reduce the principal balance to $1,875,000 and requires interest-only payments for the next two years at a rate of 9%.
- Explain how your answer for b would be different if Matrix used ASPE.
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